Q4 2024 McCormick & Company Inc Earnings Call
Good morning. This is fucking VP of Investor Relations. Thank you for joining today's fourth quarter earnings call to accompany this call. We've posted a satisfied on our IR website IR Mccormick Dot Com with me. This morning are Brendan Foley, Chairman President and CEO.
Marcos Gabriel: Marcos Gabriel Executive Vice President and CFO.
Marcos Gabriel: During this call we will refer to certain non-GAAP financial measures the nature of those non-GAAP financial measures and the related reconciliations to the GAAP results are included in this morning's press release and five.
Marcos Gabriel: In our comments certain percentages are rounded please refer to our presentation for complete information.
Marcos Gabriel: Today's presentation contains projections and other forward looking statements.
Marcos Gabriel: Actual results could differ materially from those projected the company undertakes no obligation to update or revise publicly any forward looking statements, whether because of new information future events or other factors. Please refer to our forward looking statement on slide two for more information lastly, I'd like to call out that we made changes to our release and fly.
Marcos Gabriel: <unk> to streamline and enhance our communication and these changes are in alignment with investor and analyst feedback in terms of metrics to simplify we are adopting the organic sales measure, which is defined as the impact of volume and mix plus price and excludes the impact of FX and any divestitures or acquisitions as a reminder, the <unk>.
Marcos Gabriel: Reconciliation of our sales measures can be found in the appendix of our slides and in our press release I will now turn the discussion over to Brendan.
Brendan: Good morning, everyone and thank you for joining us.
Brendan: I'm pleased to report on our strong performance for the fourth quarter and fiscal year 2024.
Brendan: Important year for Mccormick, and which we built momentum and strengthen our leadership and differentiation returning to quality volume led growth we invested in our core categories drove improved unit and volume share trends, while also expanding our margins and delivering strong earnings growth our results demonstrate the success of our priority.
Brendan: Investments in the areas that we believe will drive the most value and set us up to continue to drive momentum for 2025 and beyond.
Brendan: <unk> remains a growth company, we have robust plans that leverages the demand for flavor and the strength of our brands our strategies have proven to be effective in driving growth and compounding that growth over the years and I remain confident that we have the right leadership team in place and engaged employees globally to deliver on our near term and long term.
Brendan: Objectives with industry, leading performance.
Brendan: This morning, I will begin my remarks, with an overview of our fourth quarter, focusing primarily on top line drivers.
Brendan: Next I will highlight some areas of success and the areas that we continue to work on.
Brendan: Then I will briefly reflect on our full year performance and share our plans at a high level to continue to drive momentum into 2025.
Brendan: Next I will review, how Mccormick is positioned relative to an evolving consumer landscape.
Brendan: <unk> will then go into more depth in the fourth quarter as well as 2020 for fiscal year financial results and review, our 2025 outlook and finally before your questions I'll have some closing comments.
Brendan: Turning now to our results on slide four in.
Brendan: on slide four. In the fourth quarter, total organic sales increased by 2%, reflecting volume and product mix growth of more than 2%, partially offset by pricing.
Brendan: Total volume improved sequentially for the fourth consecutive quarter, despite a challenging environment. And this improvement in the fourth quarter was driven by our consumer segment, where volume and product mix increased approximately 4% compared to the prior year.
Brendan: In America's Consumer, we delivered meaningful sequential volume improvement, leading to more than 5% volume growth year-over-year. This growth reflects continued focus on our core categories, investing in brand marketing, accelerating innovation, and alignment with consumer trends.
Expanding Distribution, and Price Gap Management Plans.
Brendan: In EMEA, we continue to drive positive volume growth across our major markets and core categories. We realize benefits from new product innovation as well as expanded distribution.
Speaker Change: In Asia-Pacific, our results were impacted by China as the environment in this market remains challenged. Looking forward, we expect a slight and gradual recovery in 2025 relative to the prior year. Marcos will discuss this when he covers our outlook for 2025.
Speaker Change: Moving to flavor solutions, volumes were flat for the global segment. Volume performance was primarily impacted by volume softness in our CPG and QSR customers volumes.
Speaker Change: Sequentially, relative to third-quarter volume growth, our results were impacted by the timing of customer activities.
www.microsoft.com.ca
Speaker Change: Let's move to slide 5 and let me highlight for the quarter some of the key areas of success.
Speaker Change: In our global consumer segment, we successfully executed on our plans with increased investment and competitive focus towards driving growth across our four categories.
Speaker Change: In the Americas, across all categories, we drove unit, volume, and dollar consumption growth. Notably, our unit and volume consumption outpaced both branded food peers and private label in the fourth quarter.
Speaker Change: and Global Spices and Seasonings, we drove solid unit, volume, and dollar consumption growth across key markets in the Americas, EMEA, and Asia Pacific.
In the U.S., we continue to improve on our competitiveness.
Speaker Change: Our volume consumption outpaced both branded competitors and private label for the quarter.
Speaker Change: Overall holiday performance was terrific. We saw high demand and sellout on our displays that featured core holiday items as well as new innovation.
Speaker Change: We have strong performance across the portfolio, and our holiday limited-time offer finishing sugars contributed to our share momentum and were incremental to the category.
and Recipe Mixes.
Speaker Change: We continue to strengthen consumption trends in the Americas and EMEA, driving overall share. In the U.S., our Cholula line remains a significant growth driver. We are innovating with Cholula recipe mixes, bringing new consumers to the category, particularly with millennials and younger families.
Speaker Change: In the UK, our new short seasonings and recipe mixes, specifically designed for air fryers, are performing well and driving strong consumption.
Thank you.
Speaker Change: and Mustard. We made great progress globally over the last three quarters and are pleased to see that our plans are driving great results.
Speaker Change: In the fourth quarter, we drove unit, volume, and dollar share gains in the Americas. In Poland, one of the top mustard-consuming countries, our mustard consumption continues to grow, and we are also realizing unit and dollar share gains.
Speaker Change: and Hot Sauce. We continue to have underlying strength in our base business and strong consumer loyalty. We drove positive unit volume and dollar growth in the fourth quarter, demonstrating that our plans are working.
Speaker Change: Sequentially, we drove significant improvement in dollar and unit share trends. This improvement was driven by distribution gains, increased brand marketing, and innovation.
Speaker Change: We continue to make progress on total distribution points. We expanded TDPs across spices and seasonings, recipe mixes, mustard, and hot sauce in the Americas.
Speaker Change: In EMEA, we are also seeing distribution growth across markets in spices and seasonings and condiments and sauces. We are also gaining distribution in growing channels like discounters and e-commerce.
Speaker Change: Finally, in the Americas and EMEA, we drove double-digit consumption growth in e-commerce, outpacing the market. E-commerce was a significant driver of our unit consumption growth for the quarter, as consumers continue to seek convenience.
Speaker Change: In flavor solutions, we saw strength in our technically insulated high margin product category, flavors, and in branded food service. In flavors, in the Americas, we remained focused on being the partner of choice across four case competencies.
Speaker Change: savory, heat, naturally sweet, and citrus and fruit. These are areas of deep expertise and strength and where we are recognized as leaders within the flavor industry.
Speaker Change: As a result of this continued focus, our performance with our high-growth innovator customers remains strong, and we outperform the industry across most end categories.
Speaker Change: In America's branded food service business, we drove volume growth and expanded distribution across spices and seasonings and condiments, outperforming the industry.
Speaker Change: In addition, we are winning in hot sauce tabletop unit share and with innovation, new distribution, packaging, and promotion.
Speaker Change: Let me now touch on some areas where we are seeing some pressure.
Speaker Change: As I mentioned earlier, in our Asia-Pacific consumer business, the environment in China remains challenging, consumer sentiment remains low, and October and November distributor inventory buildup was below prior years due to the expected softer consumption.
and Flavor Solutions.
Speaker Change: In both Americas and EMEA, some of our CPG customers experience continued softness and volumes within their own businesses.
Speaker Change: And at E&EA, some of these customers were impacted by geopolitical boycotts in the region related to the Middle East conflict. This geopolitical impact may continue into 2025.
Speaker Change: In addition, QSR traffic remains soft in the EMEA and in the Americas.
Speaker Change: We have seen this pressure impact our results for several quarters. It's difficult to predict QSR traffic. However, we are collaborating with our customers as they focus on improving their volumes through innovation and value and aligned with consumer trends.
Speaker Change: Now, I would like to reflect on our performance for the fiscal year on slide 6.
Speaker Change: We successfully delivered on the goals we set and shared with you for 2024. We demonstrated our dedication to improving volumes.
Speaker Change: We refined our plans and prioritized our investments to drive impactful results and returned to differentiated and sustainable volume-led growth, the kind of growth that investors expect from McCormick.
Speaker Change: I am very proud of what we achieved, and you should expect continued momentum in 2025.
Speaker Change: Our team remains focused on returning to our long-term growth algorithm, strengthening our profitability, continuing our strong cash flow, paying down our debt, and reducing our leverage ratio.
Speaker Change: All have put McCormick in a position of strength to invest further with a sustained focus on growth.
Speaker Change: A few highlights for the year. On the top line, sales growth came in close to the high end of our guidance range as we expected. Importantly, we drove total positive volume growth for the year, with the consumer business delivering 1% volume growth for 2024.
Speaker Change: We continue to invest in our business, as well as drive margin expansion, in line with our guidance. Importantly, we made significant progress in advancing our Flavor Solutions operating margins.
Speaker Change: Our growth for 2024, on the top line and the bottom line, reinforces our confidence in achieving the 2028 targets we set out at our Investor Day, as well as our long-term objectives.
Speaker Change: Our results demonstrate that our foundation is strong. We have proven and powerful brands, and the results we are seeing from our refined and strengthened plans provide confidence in the effectiveness of our strategies and investments.
Speaker Change: We've made significant progress this past year and we have plans to continue that momentum in 2025 and beyond.
Let me now share our perspectives on consumer trends.
Our portfolios breadth and reach in consumer and flavor solutions.
Speaker Change: and our shared insights give us a strong understanding of consumers' flavor needs, preferences, behaviors, and trends. We are continuously monitoring these trends across the globe and adapting our strategies accordingly.
Speaker Change: Demand for flavor remains the foundation of our growth. Our business is differentiated. We do not compete for calories. We flavor them.
Speaker Change: Importantly, our opportunity continues to grow no matter where calories are shifting, and the demand for flavor continues to have a long runway.
Speaker Change: Our products in the consumer segment help flavor home-cooked meals, and in the flavor solution segment, we are collaborating with many of our customers through reformulations and flavoring to meet the evolving consumer needs for healthy products, including snacks and beverages.
Speaker Change: Overall trends continue to evolve. Consumers remain challenged, particularly lower-income consumers.
Speaker Change: While everyone continues to watch their spending, there appears to be some easing with mid- and higher-income cohorts.
Speaker Change: Furthermore, consumers continue to cook at home and are increasingly shopping the perimeter for protein and produce.
Speaker Change: Healthier and better-for-you trends, as well as a desire to stretch budgets, are fueling this continued interest in cooking from scratch, reinforcing demand for flavor and for McCormick's categories. Spices and extracts remains the number one center store growth category.
Speaker Change: Lastly, our consumer-centric mindset remains at the heart of everything that we do, and we believe we have the right plans that are continually informed by what matters most to consumers and customers.
Speaker Change: As outlined on slide 7, our growth plans remain consistent to drive growth through category management, brand marketing, new products, our proprietary technologies, and our differentiated customer engagement.
Speaker Change: Our growth levers are supported and enhanced through data and analytics as we continue to accelerate our digital transformation.
Speaker Change: Our base business is strengthening across major markets and core categories, and we have a number of initiatives in flight that will continue to drive this performance and differentiation. Let me highlight a few areas that support and enable these growth plans.
Speaker Change: First, our decisions to optimize our portfolio over the years allows us to concentrate our focus on four global categories.
Speaker Change: Spices and seasonings, condiments and sauces, branded food service, and flavors.
Speaker Change: We are intentionally focused on these categories as they are critical to driving our profitable sales growth and strengthening our labor leadership.
Speaker Change: They drive the greatest value for McCormick, and we are excited about our plans to continue to drive growth in each of them.
Speaker Change: Furthermore, consumer demand for hot and spicy is strong and remains a significant tailwind to our growth. We are uniquely positioned to win and eat with our global iconic brands, deep consumer insights, meaningful scale, technology, and expertise that we have been building for decades.
Speaker Change: He is a growth enabler in both of our segments and yet another reason to believe in our long-term objectives.
Speaker Change: Lastly, underpinning our long-term growth objectives is a unique system of advantages that work together to drive our industry-leading growth.
Speaker Change: Unique Consumer Insights, Global Sourcing Capabilities, and our Disciplined Approach to Acquisitions and Integrations.
Speaker Change: Importantly, our power of people culture is at the foundation of it all. These advantages, together with the execution of our strategies, are critical to ensuring we deliver on our growth potential.
Now, over to Marcos.
Marcos Gabriel: Thank you, Brendan, and good morning, everyone. I'm pleased to be reporting on strong results for both the quarter and the year.
Marcos Gabriel: Starting on slide 9, our total organic sales grew 2% for the quarter. This increase was volume-less, with more than 2% volume and product-mix growth, partially offset by pricing.
Marcos Gabriel: We drove strong sequential volume improvement, as you can see on the slide.
Marcos Gabriel: Moving to our consumer segment on slide 10, organic sales increased 3% as volume growth of 4% was partially offset by 1% impact of price investments.
Consumer organic sales in the Americas increased by 4%.
Marcos Gabriel: This increase reflects 5% volume growth, partially offset by price investments of 1%.
Marcos Gabriel: Volume growth was focused in our core categories and was driven by our investments in brand marketing, innovation, and expanded distribution.
Marcos Gabriel: Our investments are yielding positive results, as seen on improved consumption, and we expect the momentum to continue into 2025.
Marcos Gabriel: In EMEA, we grew consumer organic sales 3%, driven by a 5% increase from volume, partially offset by promotional pricing of 2%.
Marcos Gabriel: The volume growth was broad-based across product categories in our major markets.
Marcos Gabriel: We're pleased with the strong sustained volume-led growth momentum in EMEA in 2024.
Marcos Gabriel: This volume decline was primarily attributable to the microenvironment in China.
Turn to our flavor solution segment on slide 11.
Fourth quarter organic sales increased 1% driven by pricing.
Marcos Gabriel: In the Americas, Flavor Solutions' organic sales increased 1%, reflecting a 2% contribution from price, partially offset by a 1% decrease in volume, driven by softness in our CPG and QSR customers' volumes.
Marcos Gabriel: This was partially offset by volume growth in flavors with high growth innovator customers as well as growth in the branded food service business.
Marcos Gabriel: In EMEA, organic sales decreased by 4%, including a 2% decline from price and a 2% impact of lower volume and product mix, reflecting the impact of soft, CPG, and QSR customers' volumes.
Marcos Gabriel: In the impact region, flavor solutions organic sales increased 6% with volume growth of 7% driven by QSRs, customer promotions, limited time offers, as well as new products, partially offset by pricing of 1%.
Marcos Gabriel: At scene on slide 12, gross profit margin expanded by 20 basis points in the fourth quarter versus the year-ago period, driven primarily by the benefits from our Comprehensive Continuous Improvement Program, or CCI.
Marcos Gabriel: For the year, Rosmarin expanded 90 basis points with incremental benefit from product mix and pricing.
Marcos Gabriel: Selling, general, and administrative expenses for SG&A increased relative to the fourth quarter of last year, driven primarily by increased technology costs that shifted from the third quarter, as we expected.
Marcos Gabriel: As a percentage of net sales, SG&A increased 80 basis points.
Marcos Gabriel: For the fiscal year, H&A increased 40 basis points relative to 2023, primarily due to increased brand marketing as planned.
Marcos Gabriel: For the fourth quarter, adjusted operating income declined by 1% with minimal impact from currency.
Marcos Gabriel: This decline was driven by the increase of Sine as expected.
Marcos Gabriel: For the total company, we grew fiscal year adjusted operating income 4.5%, with minimal impacts on currency, and drove adjusted operating margin expansion of 50 basis points.
Marcos Gabriel: with Gross Margin Expansion more than offsetting the increase in SG&A expenses, including our planned increased investments in remarketing.
Marcos Gabriel: Our performance in 2024 reflects our commitment to increase our profit realization and positions as well to make continued investments to fuel top-line growth.
Marcos Gabriel: Our fourth quarter adjusted effective tax rate was 25.4%, compared to 22.3% in the year-ago period, as expected.
Marcos Gabriel: For the year, our adjusted tax rate was 20.5%, a decrease of 150 basis points from 2023, driven by a greater level of discrete tax benefits than in the prior year.
Marcos Gabriel: Our income from unconsolidated operations in the 4th quarter declined 3%.
Marcos Gabriel: As we mentioned on the last call, our results were impacted by the strengthening of the U.S. dollar against the Mexican peso, which more than offset the strong performance in our largest joint venture, McCormick de Mexico.
Marcos Gabriel: The U.S. to Mexican peace exchange rate was around 17 in the prior year compared to more than 20 in the fourth quarter, reflecting approximately an 18 percent fluctuation that impacted our reported results.
Thank you. Thank you.
Marcos Gabriel: For the fiscal year, unconsolidated income increased 32%, reflecting strong performance in McCormick, New Mexico.
Marcos Gabriel: We remain the market leader with our McCormick-branded mayonnaise, marmalade, and mustard product lines in Mexico, and the underlying business continues to perform well and has contributed meaningfully to our net income and operating cash flow results this past year.
Marcos Gabriel: Turning to our segment operational results on slide 13, adjusted operating income in the consumer segment decreased 3% with minimal impact from currency.
Marcos Gabriel: The decrease was primarily due to pricing and increased H&A costs, partially offset by cost savings generated by our CCI program.
Marcos Gabriel: 2024 was a year of investments, and as such, adjusted operating income in the consumer segment rose 1%, while adjusted operating margin declined 10 basis points as we invested to drive top-line, volume-led growth.
Marcos Gabriel: We are well positioned to continue this volume-led growth trajectory with strong margins.
Marcos Gabriel: In Flavor Solutions, adjusted operating income increased 5% or 7% in constant currency.
Marcos Gabriel: Driven by product mix, pricing, and cost savings, partially offset by increased H&A costs.
Marcos Gabriel: For the fiscal year, our Flavor Solutions operating income grew 14%, and operating margin expanded 140 basis points, reflecting our continued focus on storing Flavor Solutions profitability.
Marcos Gabriel: At the bottom line, as shown in slide 14, fourth quarter 2024 adjusted earnings per share was $0.80, as compared to $0.85 for the year-ago period.
Marcos Gabriel: This decrease was primarily due to the unfavorable tax rate as well as the increase in SNA that I mentioned earlier.
Marcos Gabriel: For the year, we deliver adjusted earnings per share of $2.95, which represents a 9% increase over 2023 and above the high end of our guidance range.
Marcos Gabriel: On slide 15, we've summarized highlights for cash flow and the year-end balance sheet. Our cash flow from operations in 2024 was $922 million compared to $1.2 billion in 2023.
Marcos Gabriel: The benefit from the increase in earnings year over year was more than offset by the impact of cash used for working capital, primarily inventories driven by strategic buying decisions, increased incentive compensation payments, and timing of cash tax payments.
Marcos Gabriel: We've returned $451 million of cash for shareholders to dividends and used $275 million for capital expenditures.
Marcos Gabriel: As a reminder, capital expansions include projects to increase capacity and capabilities to meet growing demand, advance our digital transformation, and optimize our cost structure.
Our priority remains to have a balanced use of cash.
Marcos Gabriel: This means funding investments to drive growth, returning a significant portion of cash to shareholders through dividends, and maintaining a strong balance sheet.
www.microsoft.com.ca
We remain committed to strong investment grade rating.
Marcos Gabriel: With another year of strong cash flow driven by profit and working capital initiatives, we successfully reduced our leverage ratio to below three times in 2024 and improved our cash conversion cycle by 10% as compared to the prior year.
Marcos Gabriel: In 2025, we expect to continue to deliver strong cash flow driven by profit and working capital initiatives.
www.microsoft.com.ca
Marcos Gabriel: Overall, our results for 2024 were consistent and in line with our guidance and reflect the successful strategies and focused investments in the areas that drive the greatest value.
Now turning to our 2025 financial outlook on slide 16.
Marcos Gabriel: Our outlook continues to reflect our prioritized investments in key categories to strengthen volume trends and drive long-term profitable growth, while appreciating the uncertainty of the consumer and microenvironment.
Marcos Gabriel: In addition, this outlook is in line with the expectations we laid out on Investor Day in October and reinforces our confidence in our 2028 targets as well as our long-term objectives.
Turn to the details.
Marcos Gabriel: First, currency rates are expected to have a 1 point negative impact on both net sales and adjusted operating income, and 2 points on adjusted earnings per share.
Marcos Gabriel: At the top line, we expect organic net sales growth to range between 1 and 3%, and our growth to be volume-led with minimal pricing.
www.microsoft.com.ca
Marcos Gabriel: In China, our food-away-from-home business, which is included in the APAC consumer, continues to be impacted by slower demand.
Marcos Gabriel: As a result, our outlook assumes a gradual recovery and we expect China consumer sales to improve slightly year over year.
Marcos Gabriel: While we recognize there has been weak demand, we continue to believe in the long-term growth opportunity of the China business.
Marcos Gabriel: This gross margin expansion reflects favorable impacts from product mix and cost savings from our CCI program, partially offset by the anticipated impact of a low single-digit increase in cost inflation.
Marcos Gabriel: In addition to our gross margin expansion, we expect SG&E benefits from cost savings to be partially offset by investments to drive volume growth, including brand marketing.
Marcos Gabriel: For the year, we expect our brand marketing spend to increase in the highest single digits, reflecting a double-digit increase partially offset by anticipated CCI savings.
Marcos Gabriel: As a result, our adjusted operating income is expected to grow 4% to 6% in constant currency, a balanced outlook that gives us the flexibility to continue to invest in the business while expanding margins in line with our 2028 objectives.
Marcos Gabriel: In terms of tax, we expect our tax rate to be approximately 22% for the year, compared to 20.5% in 2024, where we benefited from a number of discrete tax items that are not expected to repeat in 2025.
Thank you.
Marcos Gabriel: We expect our income from unconsolidated operations to decline in the mid-teens range in 2025, reflecting the strengthening of the U.S. dollar against the Mexican peso, which is impacting the results of our largest joint venture, McCormick & Mexico.
Marcos Gabriel: Excluding this currency headwind, McCormick de Mexico continues to deliver a strong performance.
Marcos Gabriel: To summarize, our 2025 Adjusted Earnings Per Share projection of $3.03 to $3.08 on a reported dollar basis reflects currency headwinds and the impact of the increased tax rate relative to the prior year.
Marcos Gabriel: On a constant currency basis, adjusted EPS is expected to grow between 5 and 7 percent.
Marcos Gabriel: As we head into 2025, let me summarize some of the puts and takes to consider related to our performance.
Marcos Gabriel: We expect to continue to deliver total volume growth across both segments.
Marcos Gabriel: Plus margin expansion for the first quarter is expected to be modest relative to the prior year, primarily due to price gap management investments that were mostly in place since the second quarter of 2024.
Marcos Gabriel: We expect Gross Margin to build over the year, consistent with historical trends.
Marcos Gabriel: We anticipate our SG&A will be impacted by a consistent increase in brand marketing every quarter, in line with our full year guidance.
Marcos Gabriel: In addition, our stock-based compensation expense will shift from the second quarter to the first quarter, impacting comparisons to the prior year.
Marcos Gabriel: Our adjusted operating profit will be impacted by this shifting timing, causing the first quarter to be flat or slightly down relative to the prior year. However, this will be more than offset by operating profit growth in the second quarter, and we expect our profitability to build throughout the year.
www.microsoft.com.ca
Marcos Gabriel: As Brendan noted, we continue to prioritize our investments to drive impactful results.
Marcos Gabriel: Our continuation of volume net growth underscores that we are moving in the right direction.
Marcos Gabriel: And we remain confident in the underlying fundamentals of our business and delivering on our 2025 financial outlook, near-term and long-term objectives.
Speaker Change: Thank you Marcos. Before moving to Q&A, I would like to close with our key takeaways on slide 17.
The Long-Term Trends That Fuel Our Categories.
Speaker Change: We are pleased with our results for the quarter and for the year. These results demonstrate that we are investing in the areas that drive the most value and reinforces our confidence in our plans and long-term objectives.
www.microsoft.com.ca
Speaker Change: We continue to execute on our strategic roadmap with speed and agility and in alignment with consumer trends, further capitalizing on our attractive categories across segments and driving category leadership. Our plans are yielding strong results and we expect the momentum to continue into 2025.
Speaker Change: We also continue to expand margins and manage our costs as we are investing in the business.
Speaker Change: These improvements are led by our favorable product mix and cost savings programs.
Speaker Change: Our performance, coupled with our growth plans, gives us confidence in achieving our near and long-term objectives.
Speaker Change: We believe the execution of our growth plans will be a win for consumers, customers, our categories, and McCormick, which will continue to differentiate and strengthen our leadership.
Speaker Change: Finally, I want to recognize all McCormick employees for their dedication and contributions.
particularly as we navigate this complex environment.
Speaker Change: And, reiterate my confidence that together we will continue to drive differentiated results and shareholder value. Now for your questions.
Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please, while we poll for your questions.
Speaker Change: Our first questions come from the line of Andrew Lazar with Barclays. Please proceed with your questions.
Great, thanks so much. Good morning everybody. Good morning.
Speaker Change: I guess to start off, Brendan, consumer organic sales came in almost two and a half percent, well ahead of what you know the street was anticipating, and within that volume growth of four was obviously quite strong, even despite the weakness in China.
Speaker Change: particularly in the context, I guess, of the broader packaged food environment. So, I guess, to what do you attribute this strength and, I guess, more importantly, how do you see this momentum continuing into fiscal 25?
Speaker Change: Thank you, Andrew. Well, just to, you know, kind of lead off, we believe we're really well positioned to win in an evolving environment. And I think you saw, you know, obviously some of that come through in our performance in the fourth quarter.
Speaker Change: even leading up through up to the fourth quarter I think here today. So we've been delivering on our plans and our guidance for the year essentially you know accomplishing what we said we would do.
Thank you. Thank you.
Speaker Change: So, you know, specifically from a consumer perspective, just, you know, looking at it, we're really pleased with the performance of the portfolio in the fourth quarter.
Speaker Change: So, you know, we're seeing volume growth in our core categories. I think a way to think about it is leading up to the fourth quarter, there are a lot of, you know, very healthy things in place, which will increase investments across our business.
Speaker Change: You know, increase in brand marketing, we've had increased innovation. You know, a lot of the new products that we're launching are meaningful to our performance. Expanded distribution.
Speaker Change: And then we also implemented price gap management too. So all those were things kind of in the face, kind of leading up to the fourth quarter, which were all quite positive and providing and supporting already what was emerging as really strong, healthy volume growth. I think on top of that, what was different in the fourth quarter,
Speaker Change: in which you sort of accelerated that performance. It was just a great holiday season execution. It's one of the best I've seen us execute. And, you know, we're really, really happy with the way that unfolded. We also had very successful, you know, limited time offering in these finishing sugars.
Speaker Change: That was like a 90% sell-through. It just really flew off the shelf. So we had really good performance off of that. We are also running a brand new marketing campaign supporting broadly the umbrella of McCormick, especially in the holidays.
Speaker Change: It's a refresh of what we had been running and it's really performing quite well.
Speaker Change: And I would also add on top of that, we're growing faster in unmeasured channels like e-commerce. And it's just sort of great execution beyond just grocery and mass. So thank you.
Speaker Change: Overall, we saw that 5% increase in volume also translated to 5% consumption growth. So it was in line with shipment. So I think it was a really pretty healthy quarter. As we look beyond the fourth quarter into 2025.
Speaker Change: I would add, as we said in Investor Day, continued increase in our brand marketing investment. We get great ROIs on that, we get great performance, we'll continue to lean into more brand management investments. A continued increase in innovation.
Speaker Change: So as we look ahead, we'll have strong performance on the items that we launched in 24, but it will also have more launching in
and 25.
Speaker Change: We'll also have continued focus on renovation. We spent some time talking about this yesterday, but we'll have the new, you know, package for our grilling line.
on shelf by the time the grilling season starts.
Speaker Change: and we have the gourmet launch sometime in the second half which is a relaunch of just you know product packaging and graphics and so that'll be exciting.
Speaker Change: and the existing price cap management plans will remain in place. So that's part of our basis as we move forward. We'll share more details at CAGI, but we do feel reasonably pretty good about, you know, I think the performance in the fourth quarter around our consumer business globally.
Speaker Change: Thanks for that. And then just briefly, Marcos, you know, no surprise that fiscal 25 is another reinvestment year, as you all highlighted at your analyst day last fall. I was hoping you could talk a bit more about where this investment is targeted and how this all plays into your broader guidance for the year. Thanks so much.
Speaker Change: Yeah, so Andrew, so we are expecting that we'll continue to make investments on technology. We talked about technology being one of the levers that shifted from Q3 into Q4, and you saw that HNA was impacted in Q4 by that, but you look at HNA for the full year was at 40 basis points.
Speaker Change: And that was primarily driven by brand marketing and a little bit of technology.
Speaker Change: The technology in Q4 will continue to be a line item into 2025. We're stepping up investment there, continuing to drive our ERP implementation program.
Speaker Change: Also, the new generation of capabilities, I would say, AI, things like that, and machine learning capabilities. We are building a new data analytics hub across the organization. So we are stepping up the investments in technology, and I believe that over time, we'll continue to drive CCI and productivity savings for the company.
Thank you.
Speaker Change: Thank you. Our next questions come from the line of Peter Galbo with the Bank of America. Please proceed with your questions.
Speaker Change: Copyright © 2020 Mooji Media Ltd. All Rights Reserved. No part of this recording may be reproduced without Mooji Media Ltd.'s express consent.
Speaker Change: Hey guys, good morning. Thanks for the question. If I could just follow up actually on Andrew's question around kind of organic sales and the acceleration.
Speaker Change: you know, that you saw in the fourth quarter and you know, was expected for 25. Maybe just two things, Brendan. One, I think, you know, when we when we talked to them yesterday, we were looking more for like a two to three on organic sales for 25 as an initial. And
Speaker Change: would be helpful. Thanks. Yeah, we have to provide some perspective around the guy specifically on net sales.
Speaker Change: You know, we're exiting 2024 with a strong performance and good momentum like you called out And it does set us up for you know, even good stronger performance in 2025
I think from a top-line perspective,
This guy reflects.
Speaker Change: The volume driven plan, you know, around our business, and it's really on algorithm, if you will, from a volume perspective, somewhat like we called out.
Speaker Change: at Investor Day. So it does call for meaningful volume improvement year over year, and there's very little, if any, price in the aggregate. We are building off a stronger base of performance, let's say compared to 23.
Speaker Change: And there's balanced growth between, let's say, both the consumer business and the flavor solutions business.
Speaker Change: I think I'd kind of maybe speak to two points. When frames are arranged on the low end,
Speaker Change: It's also the weakness, you know, when I think about flavor solutions, it's the weakness that we're seeing in QSR channels, particularly in EMEA.
Speaker Change: What frames the high end, though, is the strength in consumer volumes in the Americas and EMBA. I think overall this...
Speaker Change: You know, our outlook is strengthening from what we said in 2024. It reflects kind of a prudent view of a changing marketplace. It's consistent with what we said at Investor Day. And nothing's really changed in our thinking since then.
Speaker Change: Frankly, you know, quite consistent as we look at how we were thinking about 2025, you know, back then in October and how we're thinking about it today.
Speaker Change: You know, U.S. Food Service, it seems like maybe we're setting up for a bit better year in 25. EMEA as well, you know, you talked about the weakness on QSR, but just the EMEA consumer business has been delivering strong as well. So just how you're thinking about Europe in 25. Thanks very much.
Speaker Change: We saw a lot of strength in 2024 out of EMEA from a consumer business. It certainly offset what was weakness in flavor solutions. I think our view is we still see continued strength in our consumer segment there in the market. The plans are strong.
Speaker Change: Similar points to what I said in just sort of the fourth quarter, you know, those continue as we go into 25. On the flavor solution side of the business,
Speaker Change: We see a gradual strengthening of where we are there, but we have to call out right now. It is re不好意思. So, that's where we're seeing life today, but I think as we look toward the year, improvement overall in our performance in that part of the world from a flavor solutions perspective.
you know.
Speaker Change: From a CPG customer to a QSR customer, we think the strength
Speaker Change: We'll come in, you know, certainly from a CPG, it'll start to build. There is one, you know, a couple still issues geopolitically happening within that part of the marketplace. So we're seeing that come through.
Speaker Change: and some of not only the perspective that we're getting from our customers but that is playing out a little bit. The Middle East conflict is starting to affect not just the QSR side of the business but CPG. However, we still see improved performance versus 24.
on the Flavor Solutions side.
Thank you.
Speaker Change: Thank you. Our next question has come from the line of Alexia Howard with Bernstein. Please proceed with your questions.
Good morning, everyone.
Thank you. Bye-bye.
So, first of all, can I ask about the
Speaker Change: and the Flavor Solutions segment into these new, faster growth, innovative customers. I know you started that maybe a year or two ago
Speaker Change: How quickly is that happening? Are you able to share what proportion of sales those new customers represent and how that might develop over time? And then I have a follow-up.
Speaker Change: Sure, happy to provide some perspective around that. We're not going to necessarily speak to sort of how the whole portfolio breaks down.
Thank you. Bye.
Speaker Change: Despite what we're seeing in terms of just sort of overall platish
Speaker Change: volumes, as you saw in the fourth quarter, you know, broadly, we do see just faster performance.
Speaker Change: And to give you some context, just these tend to be, you know, as we describe them as sort of, you know, higher growth, innovator, you know, sort of customers, but it's happening in categories like.
Bars and granola, crackers.
Speaker Change: soups and broth, beverage, whether it's with alcohol or without alcohol, or even just sort of performance nutrition. We continue to see strength in a number of these sort of end categories, if you will, up against those taste competencies that we called out at investor day.
Speaker Change: So, these are, you know, customers that we continue to seek and acquire, and we believe that as we go to 25, we continue to really drive growth across this business, not only as volumes improve, but also as we gain share in the marketplace overall.
Speaker Change: So, you know, if I were to, you know, think about like what that added context might be, you know, given the spirit of your question, you know, that's probably, I think, you know, the context of it is, you know, think about it from a market category perspective. We're just seeing a little bit faster growth in these areas.
Speaker Change: So just to add, in Food Away From Home, you think about
Speaker Change: of Branded Food Service, we're still seeing, we had a very healthy year in 2024.
Speaker Change: are in that part of our business, and we expect that to also, because that contributes to it, Alexia, is our performance in branded food service, too.
Speaker Change: and you know we expect traffic to incrementally get better but we're working in share and we're just driving a lot more activity with our customer base.
It's been pretty healthy growth.
Speaker Change: Perfect. And as a follow-up, and this is another broader-based question,
Speaker Change: If we see a number of our food additives like red number three or some of the others
Speaker Change: eliminated from the generally recognized as safe designation and we see a round of reformulation across the broader industry.
Speaker Change: How do you position yourself to best tap into that on the flavor solution side to be part of that cycle if it plays out? Thank you, and I'll pass it on
Speaker Change: Sure, you know, we see ourselves as actively in that going on right now today.
Speaker Change: And the way we sort of have an opportunity to sort of, you know,
Thank you.
Speaker Change: play into those changes that may or may not occur. You know, as we talked about changes in food regulation or just, you know, sort of a push towards healthier eating, we actively play a part right now with the customer base that we have today in terms of, you know, working on reformulations and product improvements.
Speaker Change: decades and will continue to moving forward and so we believe we're poised pretty well to be able to work with our customers on making any product formulation changes that you know they would like to make. This could be the removal of artificial colors.
Speaker Change: and they are all working on areas like sodium reduction, increasing in clean ingredients. These are areas that we have been working on well up and prior to 2025. So we are quite confident that we will participate in that.
Great. Thank you very much. I'll pass it on.
Speaker Change: Thank you. Our next questions come from the line of Robert Mascow with TD Cowen. Please proceed with your questions.
Robert Mascow: Hi, thanks for the question. Actually, I have a couple. I want to know if I could hone in a little bit more on the guidance range of one to three. You mentioned that the low-end factors in, you know, weakness in China.
Robert Mascow: And I wanted to know, could you be more specific about your expectations in China? With the low end of the range, the 1% entail China getting worse?
Robert Mascow: or are you not that specific on what the 1% means? And then I had a quick follow-up.
Thank you.
You're thinking about...
Robert Mascow: At times, China has not met expectations, right? We certainly saw that in 23, and then we saw it again in 24. And so I think what we're doing is we're kind of factoring that into our thinking.
and Bob.
Robert Mascow: with our leaders in that business looking over just the changes in the marketplace.
Robert Mascow: as well as what are the growth plans for the year and what expectations should we have. So I think we're seeing a level of prudence from us just in terms of how to think about China and I think that's...
Robert Mascow: That's kind of the context I would say that sort of provides that that low-end context, you know, honestly Juxtaposed against you know, what I framed is sort of what's driving the high-end
Speaker Change: Yeah, Rob, this is a dynamic environment. We want it to be balanced in our call right now, not only in terms of top line, but also in terms of from an OP perspective and EPS, as you saw in the guide. So we want it to really be, I mean, I think it is a positive guide, but also it's balanced given the environment that we are in.
Speaker Change: Okay, and the follow-up, in fourth quarter, you know, the flow through the operating income wasn't quite as strong as we and I think the street had expected.
Speaker Change: So, can you explain, was your operating income in fourth quarter in line with your expectations? Or was there a little more incremental spending on distribution, which you mentioned in your press release, or the tax spending?
Thank you.
Speaker Change: No, Rob, I mean, it was pretty much in line with our expectations, I mean, how we came in in Q4. I mean, we talked about in the last call that we were going to be shifting some of the expenses
All of
Speaker Change: And that is what is kind of, you know, taking us down to a negative OP, slightly negative OP.
Speaker Change: But if you think about it from the HNA perspective, on a four-year basis,
Speaker Change: It's in line as well with our expectations, 40 basis points incrementally year-on-year on the back of A&P, continued technology investments as I mentioned before, and this step-up in technology will continue into 2025.
Okay, great. Thank you.
Speaker Change: Thank you. Our next questions come from the line of Rob Dickerson with Jeffries. Please proceed with your questions.
Thank you. Thank you.
Great, thanks so much.
Speaker Change: I guess just, you know, in terms of pricing, the commentary that, you know, you gave maybe about Q1, you know, as you continue to look to manage, you know, price gaps.
Speaker Change: I guess, you know, my question is kind of, like, how much more, I guess, do you think you need to actually manage price gaps? Like, when you talk about investment, or you're talking about, you know, technology investment, kind of brand building in general, a lot of different investments. If we focus just on price...
Speaker Change: Do you feel like there's actually that much more price investment that needs to come through with Q1 than maybe any perspective on kind of how that flows through for the year? And I just ask, given especially Consumer America's volumes.
Speaker Change: you know, we're fairly strong in Q4, and I'm not sure if that's, you know, Q4 specific because of some of the holiday, you know, products you had in the marketplace, or if volumes continue, like, kind of, why do you need to continue to invest in price caps? Thanks.
Speaker Change: Yeah, Rob, on price, I think there's really kind of two points made in there to address in your question.
Speaker Change: As we think about price and, you know, we called out, you know, we're still going to be overlapping the beginning of those investments in Q1.
Speaker Change: That's consistent, that level of investment is consistent with what we were doing you know previously like Q2, Q3.
this sort of year-to-date. So if we go into Q1
Speaker Change: We're not seeing a step up in that. We're seeing sort of a maintenance of it, if you will, as we go into Q1. The way I would,
Speaker Change: for the balance of year is maintaining that investment in our baseline, if you will.
Speaker Change: of how we think about, you know, supporting our brands and supporting the volume group that we've been driving. So, the price gap management, you know, as we have a plan for right now, 25, is a continuation of how we applied it in the past.
and 24.
Speaker Change: Of course, throughout the year, we just don't set those numbers and leave them and never look at them. We're constantly evaluating how they're performing.
Speaker Change: You mentioned a little bit about sort of the performance in the fourth quarter and its strength. Let's also remember the fourth quarter is our biggest quarter of the year in terms of performance.
and I think what you saw was just
Now, obviously, a really strong execution.
Speaker Change: Pick up from consumers in terms of more scratch cooking holiday season
Speaker Change: The holiday season was a bit compressed, but it didn't seem to hurt us in any way.
Speaker Change: And we had really overall pretty good performance, but those are just a little other points of context I would add as you think through the profile of our performance.
Speaker Change: Okay, great. And then maybe just kind of more broadly speaking, you know, as you think of your portfolio, at least in the consumer side,
Speaker Change: You know, it does seem as if, let's say, at least through the pack half of last year, right, that kind of more meal-related items.
Speaker Change: seem to be doing a little bit better, like Primrose Store, whether it's chicken pasta, etc., you know, versus, you know, maybe some more incremental pressure or ongoing pressure and some more discretionary items.
Michael Smith, Marcos Gabriel, Faten Freiha, Brendan Foley
Speaker Change: I'm just kind of curious kind of what the updated perspective is, you know, on some momentum let's say on the perimeter and some of these no related items and then clearly how that would benefit, again, your consumer America's business. And that's all I have. Thank you.
Speaker Change: Rob, I think there was a little bit there where you may have cut out, but I think I got your question, and that was more, so what's our outlook on sort of the consumer in 2025?
Speaker Change: I would say our outlook on the consumer environment hasn't changed significantly, but that doesn't mean it's boring. There's a lot going on right there, and I think a lot of it does really position us well to win in this environment.
Speaker Change: environment. The demand for flavor is pretty strong. As we've said before, others compete for the calories, we flavor them. And we are seeing a continuation of cooking at home and a focus on healthier eating.
Speaker Change: And we believe that, obviously, this positions our portfolio well, to perform well in an environment like this. We believe that value is going to remain important for consumers.
as you saw in some of my prepared remarks.
Speaker Change: You know, it's still that lower income consumer is still remains quite challenged overall. And they're looking for value and affordability, and not just in the United States. They're looking for it in Europe, they're looking for it in Asia, and so these are things that we believe are kind of, you know, globally consistent themes that we're seeing and influence our plans and the way we think about our portfolio.
Speaker Change: you know overall. So you know that's our context with the consumer going into 2025. I would say you know remaining you know focused on you know driving towards healthy eating.
Speaker Change: When we see people go to the perimeter to buy more produce, to buy more protein, we think they're doing it for two reasons. They're doing it because they're looking to obviously, you know, save money, you know, stretch their budgets, but also there's a bias towards eating healthier.
All right, super. Thank you.
www.microsoft.com.ca
Speaker Change: Thank you. Our next questions come from the line of Ken Goldman with JP Morgan. Please proceed with your questions.
Ken Goldman: Hi, thank you. I was hoping for a little bit of color on your outlook for margin expansion growth between the two segments.
you know, this past year, 2024.
Speaker Change: Consumer was flattish. Obviously, Flavor Solutions had a great performance in terms of margin growth. Are you expecting, maybe not the same magnitude, but sort of directional similarity, just given some of the pressure that consumer might feel from higher ad spending, maybe a little bit more promotion. Just wanted to get a sense for how you would like us to kind of think about that progression from here.
Speaker Change: Yeah, sure, Ken. So, first of all, I mean, we're very pleased with the gross margin expansion we had in 2024. I mean, it was 90 basis points.
Speaker Change: at a high end of our guidance range. And we have really, you know, good reasons to believe that this will continue into 2025.
So our call is for 50 to 100 basis points.
Speaker Change: A couple of items there I would say that is driving these expectations for us.
Speaker Change: Obviously, CCI and our productivity savings that we have in place right now is working very well for us.
Speaker Change: I mentioned technology before. Technology will also help drive more savings in the future, years. The usage of global business services organization will continue to tap on that, simplifying processes.
I do at the date. ________________
Speaker Change: as we continue to shift our portfolio to high-margin categories such as flavors, brand and food service, those categories drive higher margins.
Speaker Change: So, if you think about it between the two segments, I would expect...
Speaker Change: More gross margin coming from the flavor solution segment versus the consumer segment. That is also in line with our strategy of continuing to drive profitability at the bottom line for flavor solutions. As you saw, we've improved our operating margin by 140 basis points.
Speaker Change: in 2024, and we have a commitment to get back to 14.5% by 2028, so that was a very important progress that we made now two years in a row on flavor solutions. So that is the whole idea about our guide in terms of gross margin as well as operating margin.
Okay, thank you.
Speaker Change: Thank you. Our next questions come from the line of Max Gumport with BNP Paribas. Please proceed with your questions.
Thanks for the question. In the U.S. specifically,
Speaker Change: Your consumer segment is posting strong volumes, but you called that your CPG customers and labor solutions have soft volumes.
Speaker Change: which we can clearly see in Nielsen data as well. So I'm just curious for...
Speaker Change: for your color and what's driving that dichotomy. Thanks very much.
Speaker Change: Well, as you know, Max, we compete within segments that are, you know, sort of very focused around, you know, herb spices and seasonings and condiments and sauces.
Thank you.
of Food and Beverage within the United States.
Speaker Change: You know, I think we first have to start there, and these categories of healthy growth.
Speaker Change: and so we benefit from that, but also I believe that we jumped on execution quite early in 2024.
If you think about...
Speaker Change: Maybe my remarks back at the beginning at this time last year, I said that it was our
and really meet the consumer with where they were.
or where they are today.
Speaker Change: in the marketplace. So I think we've also benefited from that. You know, in some of the categories in which we compete, you know, large ones like condiments and sauces, we're competing in what we believe are some of the faster growing versions of condiments and sauces, like heat as one example.
Speaker Change: Please take a category like mustard, we're growing it because we're making mustard important to consumers. It's, by the way, a very sort of healthy profile when you think about that condiment. So I think there's a number of.
indicators here that give us a little bit of
Speaker Change: You know sort of an improved profile and it's a combination of both our execution and and our commitment to drive the volume But also we're operating in in relatively healthy categories in the consumer environment right now You know certainly as it always has continues to favors the categories we plan
Speaker Change: And then, Marcos, there is the comment about cash flow in...
Speaker Change: in 24 being impacted by decisions to increase inventory. I think there were strategic buying decisions. Can you just provide more color on what those were and how we should think about
Speaker Change: Those in FY 25. I'll leave it there. Thanks very much
Speaker Change: Sure, I mean, the cash flow continues to be a very positive outcome for us this year, continues to drive a lot of cash, this company.
Speaker Change: 922 million dollars in 2024. We've made some, you know, business as usual for us. We make decisions about buying some of the commodities for us at times, so oftentimes we make those decisions to bring the inventory in, you know, to protect service and to drive supply chain, be, you know, available for supply chain, but also to lock in some favorable costs.
Speaker Change: And so we do take those decisions often times. Difficult to predict what's going to happen in 2025, but this is part of our playbook in terms of how we manage.
Speaker Change: All the input costs and companies across the globe within our procurement organization. They have a very data-driven analysis and methodology that they use, and we leverage a lot of that to make those decisions.
Speaker Change: Thanks very much. Thank you. Thank you. Our next questions come from the line of Stephen Powers with Deutsche Bank. Please proceed with your questions.
Stephen Powers: increase year-over-year, was going to be pretty even throughout the year.
Stephen Powers: I just wanted to play that back and validate and if that's not correct if you could give us a little sense of the cadence of increase.
Stephen Powers: and then Brendan, I don't, the other part of that is just kind of the...
Stephen Powers: the, what, where that money is going to go? And is it, is it, should we think about, is it just more spending in the same directions? Or does the makeup of brand marketing and the focus of that marketing shift at all in 25 versus what we've seen, you know, looking backwards? Thank you.
Speaker Change: So Steve, the first part of the question is yes, I mean the answer is yes, I mean we're going to be spending similarly to 2024 levels.
Speaker Change: on A&P, high single digits, and it's going to be across all quarters. So pretty much even across all quarters, leading to the high single digit, which is the same as we saw in 2024.
Speaker Change: On that, we think about the vehicles that we go into and we think about the presentation that we shared yesterday.
Speaker Change: Those are the vehicles in which we're going into, so it's not that we see dramatic change in exactly sort of how we're spending it, but you see that we're getting even greater penetration and reach as we add.
more dollars to support the investment behind our brands.
Speaker Change: I would also say we also look strategically across the portfolio and decide to increase spend levels on one brand versus another. If you think about this idea of driving resources and focus where we get the strongest return.
Speaker Change: That also drives our thinking about that allocation of A&P. So, as we said, for example, in the beginning of 24, we are going to add a lot more media coverage.
Speaker Change: more 12-month coverage on a brand like Frank's Red Hot and we've seen good performance off of that. And so now that's in our baseline and we'll continue to build on it. There are other brands which we are going to start to flex even more A&P spend into.
Speaker Change: So this is the mindset that we use, but I think the review that Tapita gave, you know, as investors, I think is a good illustration of where we tend to spend the money, but it's also sort of starting to place, you know, increased spend on certain other brands.
www.microsoft.com.ca
Great. Thank you very much. Good luck.
Speaker Change: Thank you. Our final questions will come from the line of Tom Palmer with Citi. Please proceed with your questions.
Good morning and thanks for putting me in.
Tom Palmer: I wanted to, I guess, first ask on just the cadence of earnings relative to the annual growth ranges for organic sales growth and operating profit growth. Should we be thinking about starting off the year within these annual guidance ranges and sustaining it, or is there some builds to be thinking about? Thanks.
www.microsoft.com.ca
Tom Palmer: So, in terms of top line, we'll continue to drive top line momentum from 2024 into 2025. You'll see volume growth across both segments in Q1, and that should continue through Q4. So, that's our expectations into this year. In terms of profit, in my prepared remarks, I mentioned a little bit of a shift.
Tom Palmer: from Q2 into Q1 now for our new policy, so that's going to impact Q1, but it's going to be more than offset by the increase of OP in Q2. So, and then you should see the similar trend going into the back half of the year. So, I'd say, you know, top line consistent across all quarters, a little bit of shift in OP between Q1 and Q2, rose margin line pretty much consistent and growing across, you know, from Q2 to Q4.
Speaker Change: Thanks for that, Collar. On the GV income, I just wanted to clarify the currency versus underlying trends. If we were to exclude the currency headwinds...
Speaker Change: Would this business, in kind of how you're thinking about 2025, still be growing?
www.microsoft.com.ca
Speaker Change: Oh, yes. I mean, the business is still growing. The business is very robust down in Mexico.
and the media. Thanks and we'll see you. Bye.
www.microsoft.com.ca
All right. Thank you.
Speaker Change: Thank you. We have reached the end of our question-and-answer session. I would now like to hand the call back over to Faten Freiha for closing remarks.
Faten Freiha: Thank you, and thanks to all for joining today's call. If you have any further questions regarding today's information, please feel free to contact me. This concludes our call this morning.
Thank you.
Faten Freiha: Thank you. This does conclude today's teleconference. You may disconnect at this time.
[music]
Speaker Change: Don't forget to Like, Share and Subscribe and click on the bell icon!
[music]
Speaker Change: Gieven all these changes in speech and in action, how has this all been important to you? When asked if
Speaker Change: Escape from astro-phobia by Historian Kubrick Literature Team Ideas Characters Story Thank you for watching!
Speaker Change: Got to care about trans guys', you know? So you're, uh... 象毒者 What? What'd you say? Don't be ridiculous. Don't even try to think you're a real transformer. You f斯th You f斯t You're not even a transformer.
Okie Dokie 360-over-the-Air Edited By Directed By Especially By Noteday
www.microsoft.com.ca
Lousy Track by My Heroix
Speaker Change: Michael and Faten Marcos Gabriel Faten Michael Brendan Foley Faten Foley Faten Fatten Brendan Foley Faten Faten Foley
Speaker Change: Father of Street Orcas Committee on State and Livestocketail.org In 2017, the State of Miami was appointed to the age of approximately 80 years In 2012, the Corps was appointed to the age of about 90
[music]
Good morning. This is Faten Freiha, VP of Investor Relations.
Speaker Change: Thank you for joining today's fourth quarter earnings call. To accompany this call, we've posted a set of slides on our IR website, ir.mccormick.com. With me this morning are Brendan Foley, Chairman, President and CEO, and Marcos Gabriel, Executive Vice President and CFO.
Speaker Change: During this call, we will refer to certain non-GAAP financial measures. The nature of those non-GAAP financial measures and the related reconciliations to the GAAP results are included in this morning's press release and slides.
Speaker Change: In our comments, certain percentages are rounded. Please refer to our presentation for complete information. Today's presentation contains projections and other forward-looking statements.
Speaker Change: Actual results could differ materially from those projected. The company undertakes no obligation to update or revise publicly any forward-looking statements.
whether because of new information, future events, or other factors.
Speaker Change: Please refer to our forward-looking statement on slide 2 for more information.
Speaker Change: Lastly, I'd like to call out that we made changes to our release and slides to streamline and enhance our communication.
Speaker Change: and these changes are in alignment with investor and analyst feedback. In terms of metrics, to simplify, we are adopting the Organic Sales Measure, which is defined as the impact of volume and mix plus price and excludes the impact of FX and any divestitures or acquisitions.
Speaker Change: As a reminder, the reconciliations of our sales measures can be found in the appendix of our slides and in our press release. I will now turn the discussion over to Brendan.
Brendan Foley: Good morning everyone and thank you for joining us. I'm pleased to report on our strong performance for the fourth quarter in fiscal year 2024.
Brendan Foley: An important year for McCormick in which we built momentum and strengthened our leadership and differentiation, returning to quality, volume-led growth. We invested in our core categories.
Brendan Foley: through improved unit and volume share trends while also expanding our margins and delivering strong earnings growth.
Brendan Foley: Our results demonstrate the success of our prioritized investments in the areas that we believe will drive the most value and set us up to continue to drive momentum for 2025 and beyond.
Well, Cormac remains a growth company.
Brendan Foley: We have robust plans that leverage the demand for flavor and the strength of our brands.
Brendan Foley: Our strategies have proven to be effective in driving growth and compounding that growth over the years. And I remain confident that we have the right leadership team in place and engaged employees globally to deliver on our near-term and long-term objectives with industry-leading performance.
Brendan Foley: This morning, I will begin my remarks with an overview of our fourth quarter, focusing primarily on top-line drivers. Next, I will highlight some areas of success and the areas that we continue to work on.
Brendan Foley: Then, I will briefly reflect on our full-year performance and share our plans at a high level to continue to drive momentum in 2025.
Brendan Foley: Next, I will review how McCormick is positioned relative to an evolving consumer landscape.
Marcos Gabriel: Marcos will then go into more depth in the fourth quarter, as well as 2024 fiscal year financial results, and review our 2025 outlook. And finally, before your questions, I will have some closing comments.
Marcos Gabriel: Turning now to our results on slide 4. In the fourth quarter, total organic sales increased by 2%, reflecting volume and product mix growth of more than 2%.
partially offset by pricing.
Marcos Gabriel: Total volume improved sequentially for the fourth consecutive quarter, despite a challenging environment. And this improvement in the fourth quarter was driven by our consumer segment, where volume and product mix increased approximately 4% compared to the prior year.
Marcos Gabriel: In America's Consumer, we delivered meaningful sequential volume improvement, leading to more than 5% volume growth year over year. This growth reflects continued focus on our core categories, investing in brand marketing, accelerating innovation, and alignment with consumer trends.
Expanding Distribution, and Price Gap Management Plans.
Marcos Gabriel: In EMEA, we continue to drive positive volume growth across our major markets and core categories. We realize benefits from new product innovation as well as expanded distribution.
Marcos Gabriel: In Asia-Pacific, our results were impacted by China as the environment in this market remains challenged.
Marcos Gabriel: Looking forward, we expect a slight and gradual recovery in 2025 relative to the prior year. Marcos will discuss this when he covers our outlook for 2025.
Marcos Gabriel: Moving to flavor solutions, volumes were flat for the global segment. Volume performance was primarily impacted by volume softness in our CPG and QSR customers volumes.
Marcos Gabriel: Sequentially, relative to third quarter volume growth, our results were impacted by the timing of customer activities.
www.microsoft.com.au
Marcos Gabriel: Let's move to slide 5 and let me highlight for the quarter some of the key areas of success.
Marcos Gabriel: In our global consumer segment, we successfully executed on our plans with increased investment and competitive focus towards driving growth across our four categories.
Marcos Gabriel: In the Americas, across all categories, we drove unit, volume, and dollar consumption growth. Notably, our unit and volume consumption outpaced both branded food peers and private label in the fourth quarter.
Marcos Gabriel: and Global Spices and Seasonings, which are of solid unit, volume, and dollar consumption growth across key markets in the Americas, EMEA, and Asia Pacific.
In the U.S., we continue to improve on our competitiveness.
Marcos Gabriel: Our volume consumption outpaced both branded competitors and private label for the quarter.
Marcos Gabriel: Overall holiday performance was terrific. We saw high demand and sellout on our displays that featured core holiday items as well as new innovation.
Marcos Gabriel: We had strong performance across the portfolio, and our holiday limited-time offer, Finishing Sugars, contributed to our share momentum and were incremental to the category.
and Recipe Mixes.
Marcos Gabriel: We continue to strengthen consumption trends in the Americas and EMEA, driving overall share. In the U.S., our Cholula line remains a significant growth driver. We are innovating with Cholula recipe mixes, bringing new consumers to the category, particularly with millennials and younger families.
Marcos Gabriel: In the UK, our new short seasonings and recipe mixes, specifically designed for air fryers, are performing well and driving strong consumption.
Marcos Gabriel: and Mustard. We made great progress globally over the last three quarters and are pleased to see that our plans are driving great results.
Marcos Gabriel: In the fourth quarter, we drove unit, volume, and dollar share gains in the Americas.
Marcos Gabriel: In Poland, one of the top mustard-consuming countries, our mustard consumption continues to grow, and we are also realizing unit and dollar share gains.
Marcos Gabriel: and Hot Sauce. We continue to have underlying strength in our base business and strong consumer loyalty. We drove positive unit volume and dollar growth in the fourth quarter, demonstrating that our plans are working.
Marcos Gabriel: Sequentially, we drove significant improvement in dollar and unit share trends. This improvement was driven by distribution gains, increased brand marketing, and innovation.
Marcos Gabriel: We continue to make progress on total distribution points. We expanded TDPs across spices and seasonings, recipe mixes, mustard, and hot sauce in the Americas.
Marcos Gabriel: At EMBA, we are also seeing distribution growth across markets in spices and seasonings and condiments and sauces.
Marcos Gabriel: We are also gaining distribution and growing channels like discounters and e-commerce.
Marcos Gabriel: In Flavor Solutions, we saw strength in our technically insulated high-margin product category, Flavors, and in branded food service.
Marcos Gabriel: In Flavors, in the Americas, we remain focused on being the partner of choice across four case competencies.
Marcos Gabriel: savory, heat, naturally sweet, and citrus and fruit. These are areas of deep expertise and strength and where we are recognized as leaders within the flavor industry.
America's branded foodservice business, we drove volume growth and expanded distribution across spices, and seasonings and condiments outperforming the industry and.
Marcos Gabriel: In addition, we are winning and hot sauce, tabletop unit share and with innovation, new distribution packaging and promotion.
Marcos Gabriel: Let me now touch on some areas, where we are seeing some pressure.
Marcos Gabriel: As I mentioned earlier in our Asia Pacific consumer business the environment in China remains challenging consumer sentiment remains low in October and November distributor inventory buildup was below prior years due to the expected softer consumption.
Marcos Gabriel: Flavor solutions.
Marcos Gabriel: In both Americas, and EMEA some of our CPG customers experienced continued softness in volumes within their own businesses.
Marcos Gabriel: And in EMEA. Some of these customers were impacted by geopolitical boycotts in the region related to the Middle East conflict. This geopolitical impact may continue into 2025.
Marcos Gabriel: In addition, <unk> traffic remained soft in EMEA and in the Americas, We have seen this pressure impact our results for several quarters, it's difficult to predict <unk> traffic. However, we are collaborating with our customers as they focus on improving their volumes through innovation and value and aligned with consumer trends.
Now I would like to reflect our performance for the fiscal year on slide six.
Marcos Gabriel: We successfully delivered on the goals, we set and shared with you for 2024, we demonstrated our dedication to improving volumes.
Marcos Gabriel: We refined our plans and prioritized our investments to drive a tactful results and returned to differentiated and sustainable volume led growth.
Marcos Gabriel: Kind of growth that investors should expect for Mccormick.
Marcos Gabriel: I'm very proud of what we achieved and you should expect continued momentum in 2025.
Marcos Gabriel: Our team remains focused on returning to our long term growth algorithm strengthening our profitability continuing our strong cash flow paying down our debt and reducing our leverage ratio.
Marcos Gabriel: All have put mccormick in a position of strength to invest further with a sustained focus on growth.
Marcos Gabriel: A few highlights for the year on the topline sales growth came in close to the high end of our guidance range as we expected.
Marcos Gabriel: Importantly, we drove total positive volume growth for the year with the consumer business delivering 1% volume growth for 2024.
Marcos Gabriel: We continue to invest in our business as well as drive margin expansion in line with our guidance importantly, we made significant progress in advancing our flavor solutions operating margins are.
Marcos Gabriel: Our growth for 2024 on the topline and Bottomline reinforces our confidence in achieving the 2028 targets, we set out at our Investor day, as well as our long term objectives.
Marcos Gabriel: Our results demonstrate that our foundation is strong we have proven and powerful brands and the results. We're seeing from our refined and strengthened plans provide confidence in the effectiveness of our strategies and investments. We've made significant progress. This past year and we have plans to continue that momentum in 2025 and.
And beyond.
Marcos Gabriel: Let me now share our perspectives on consumer trends, our portfolio's breadth and reach and consumer and flavor solutions and our shared insights give us a strong understanding of consumers flavor needs preferences behaviors and trends we are continuously monitoring these trends across the globe.
Marcos Gabriel: Adapting our strategies accordingly.
Marcos Gabriel: Demand for flavor remains the foundation of our growth our business is differentiated we do not compete for calories, we flavor them.
Marcos Gabriel: Importantly, our opportunity continues to grow no matter, where calories are shifting and the demand for flavor continues to have a long runway.
Marcos Gabriel: Our products in the consumer segment help flavor home cooked meals and in the flavor solutions segment. Our we are collaborating with many of our customers to re formulations and flavors to meet the evolving consumer needs for healthy products, including snacks and beverages.
Overall trends continue to evolve consumers remain challenged particularly lower income consumers, while everyone continues to watch their spending there appears to be some easing with mid and higher income cohorts yet.
Speaker Change: Yes, I'll still remain focused on maximizing value without compromising flavor <unk>.
Speaker Change: Demand for larger sizes remains elevated as they are seeking value at the same time, there is increased demand for small or trial sizes, highlighting that flavor exploration remains important.
Speaker Change: Furthermore, consumers continue to Cook at home and are increasingly shopping the perimeter for protein and produce healthier and better for you trends as well as the desire to stretch budgets are fueling. This continued interest in cooking from scratch reinforcing demand for flavor and for mccormick's categories spices and XT.
Speaker Change: <unk> remains the number one center store growth category.
Lastly, our consumer centric mindset remains at the heart of everything that we do and we believe we have the right plans that are continually informed by what matters most to consumers and customers.
Speaker Change: As outlined on slide seven our growth plans remain consistent to drive growth through category management brand marketing new products, our proprietary technologies and our differentiated customer engagement.
Speaker Change: Our growth levers are supported and enhanced through data and analytics as we continue to accelerate our digital transformation.
Speaker Change: Our base business is strengthening across major markets and core categories and we have a number of initiatives in flight that will continue to drive this performance and differentiation let.
Let me highlight a few areas that support and enable these growth plans.
Speaker Change: First our decisions to optimize our portfolio over the years allows us to concentrate our focus on four global categories.
Speaker Change: Spices, and seasonings condiments, and sauces branded foodservice and flavors.
Speaker Change: We are intentionally focused on these categories as they are critical to driving our profitable sales growth and strengthening our flavor leadership.
Speaker Change: Drive the greatest value for Mccormick and we are excited about our plans to continue to drive growth in each of them.
Speaker Change: Furthermore, consumer demand for hot and spicy is strong and remains a significant tailwind to our growth. We are uniquely positioned to win in <unk> with our global iconic brands deep consumer insights meaningful scale technology and expertise that we have been building for decades key.
Speaker Change: <unk> as a growth enabler and both of our segments and yet another reason to believe in our long term objectives.
Speaker Change: Lastly, underpinning our long term growth objectives is a unique system of advantages that work together to drive our industry leading growth.
Speaker Change: These advantages include the breadth and reach of our focused global portfolio.
Speaker Change: <unk>, leading brands, our heat platform unique consumer insights global sourcing capabilities and our disciplined approach to acquisitions and integrations importantly, our power of people culture is at the foundation of it all these.
Speaker Change: These advantages together with the execution of our strategies are critical to ensuring we deliver on our growth potential.
Marcos Gabriel: Now over to Marcos.
Marcos Gabriel: Thank you Brendan and good morning, everyone I am pleased to be reporting on strong results for both the quarter and the year.
Marcos Gabriel: Starting on slide nine our total organic sales grew 2% for the quarter.
Marcos Gabriel: This increase was volume that was more than 2% volume and product mix growth, partially offset by pricing.
Marcos Gabriel: Drove strong sequential volume improvement as you can see on the right.
Marcos Gabriel: Moving to our consumer segment on slide 10, organic sales increased 3% as volume growth of 4% was partially offset by a 1% <unk>.
Marcos Gabriel: Fact of pricing investments.
Marcos Gabriel: Consumer organic sales in the Americas increased by 4%.
Marcos Gabriel: This increase reflects 5% volume growth, partially offset by pricing investments of 1%.
Marcos Gabriel: Volume growth was focused in our core categories and was driven by our investments in brand marketing innovation and expanded distribution or.
Marcos Gabriel: Our investments are yielding positive results as seen on probe consumption. When we expect the momentum to continue into 2025.
Marcos Gabriel: In EMEA, we grew consumer organic sales, 3% driven by a 5% increase from volume, partially offset by promotional pricing up 2%.
Marcos Gabriel: The volume growth was broad based across product categories in our major markets.
Marcos Gabriel: Pleased with the strong sustained volume led growth momentum in EMEA in 2024.
Marcos Gabriel: Consumer organic sales in the APAC region declined 10%.
Marcos Gabriel: Driven by an 11% decrease in volume, partially offset by a 1% contribution from price.
Marcos Gabriel: This volume decline was primarily attributable to the macro environment in China.
Marcos Gabriel: Turning to our flavor solutions segment on slide 11.
Marcos Gabriel: Fourth quarter organic sales increased 1% driven by pricing.
Marcos Gabriel: In the Americas flavor solutions organic sales increased 1%, reflecting a 2% contribution from price, partially offset by a 1% decrease in volume driven by softness in our CPG and kyocera customers' volumes.
Marcos Gabriel: This was partially offset by volume growth in flavors with high growth innovative customers as well as growth in the branded foodservice business.
Marcos Gabriel: In EMEA organic sales decreased by 4%, including a 2% decline from price and a 2% impact of lower volume and product mix, reflecting the impact of soft CPG and costar customers volumes.
Marcos Gabriel: In the APAC region flavor solutions organic sales increased 6% with volume growth of 7% driven by cube size customer promotions limited time offers as well as new products, partially offset by pricing of 1%.
Marcos Gabriel: As seen on slide 12, gross profit margin expanded by 20 basis points in the fourth quarter versus the year ago period, driven primarily by the benefit from our comprehensive continuous improvement program or CCI.
Marcos Gabriel: For the year gross margin expanded 90 basis points with incremental benefit from product mix and pricing.
Marcos Gabriel: Selling general and administrative expenses.
Marcos Gabriel: SG&A increased relative to the fourth quarter of last year, driven primarily by increased technology costs that shifted from the third quarter as we expected.
As a percentage of net sales SG&A increased 80 basis points.
Marcos Gabriel: The fiscal year SG&A increased 40 basis points relative to 2023, primarily due to increased brand marketing as planned.
Marcos Gabriel: For the fourth quarter adjusted operating income declined by 1% with minimal impact from currency.
Marcos Gabriel: This decline was driven by the increased SG&A as expected.
Marcos Gabriel: For the total company, we grow fiscal year, adjusted operating income, 45% with minimal impact from currency and drove adjusted operating margin expansion of 50 basis points with gross margin expansion more than offsetting the increase in SG&A expenses, including our planned increased investments in by market.
Marcos Gabriel: <unk>.
Marcos Gabriel: Our performance in 2020 reflects our commitment to increase our profit validation and positions us well to make continued investments to fuel top line growth.
Marcos Gabriel: Our fourth quarter adjusted effective tax rate was 25, 4% compared to 22, 3% in the year ago period as expected.
Marcos Gabriel: For the year, our adjusted tax rate was 25% a decrease of 150 basis points from 2023.
Marcos Gabriel: By a greater level of discrete tax benefits than in the prior year.
Marcos Gabriel: Our income from unconsolidated operations in the fourth quarter declined 3%.
Marcos Gabriel: As we mentioned on the last call. Our results were impacted by the strengthening of the U S dollar against the Mexican peso, which more than offset the strong performance in our largest joint venture Mccormick de Mexico.
Marcos Gabriel: The U S to Mexican peso exchange rate was around 17 in the prior year compared to more than 20 in the fourth quarter.
Lighting, approximately an 18% fluctuation that impacted our reported results.
Marcos Gabriel: For the fiscal year on consolidated net income increased 32%, reflecting strong performance hemoglobin within the medical.
Marcos Gabriel: We remain the market leader with our Mccormick branded mayonnaise marmalades and most of our product lines in Mexico, and the underlying business continues to perform well and has contributed meaningfully to our net income and operating cash flow results. This past year.
Marcos Gabriel: Turning to our segment operational results on slide 13, adjusted operating income in the consumer segment decreased 3% with minimal impact from currency.
Marcos Gabriel: The decrease was primarily due to pricing and increased SG&A costs.
It upset by cost savings generated by our CCI program.
Marcos Gabriel: 224, it was a year of investments and as such adjusted operating income in the consumer segment rose, 1%, while adjusted operating margin declined 10 basis points as we invested to drive topline volume led growth.
Marcos Gabriel: We are well positioned to continue this volume led growth trajectory with strong margins.
Marcos Gabriel: In flavor solutions, adjusted operating income increased 5% or 7% in constant currency.
Marcos Gabriel: Driven by product mix pricing and cost savings, partially offset by increased SG&A costs.
Marcos Gabriel: For the fiscal year, our flavor solutions operating income grew 14% and operating margin expanded 140 basis points, reflecting our continued focus on starting flavor solutions profitability.
And the bottom line as shown on slide 14 fourth quarter 2024 adjusted earnings per share was <unk> 80 <unk>.
Marcos Gabriel: As compared to <unk> 85 for the year ago period.
This decrease was primarily due to the unfavorable tax rates as well as the increase in SG&A that I mentioned earlier.
Marcos Gabriel: For the year, we delivered adjusted earnings per share of $2 95.
Marcos Gabriel: Which represents a 9% increase over 2023 and above the high end of our guidance range.
Marcos Gabriel: On slide 15, we've summarized highlights for cash flow and the year end balance sheet.
Marcos Gabriel: Our cash flow from operations in 2024 was $922 million compared.
Marcos Gabriel: Compared to $1 2 billion in 2023.
Marcos Gabriel: The benefit from the increase in earnings year over year was more than offset by the impact of cash used for working capital primarily inventory driven by strategic buying decisions.
Marcos Gabriel: Incentive compensation payments and timing of cash tax payments.
Marcos Gabriel: We returned $451 million of cash to shareholders through dividends and used $275 million for capital expenditures.
Marcos Gabriel: As a reminder, capital expenditures include projects to increase capacity and capabilities to meet growing demand.
Marcos Gabriel: Advance, our digital transformation and optimize our cost structure.
Marcos Gabriel: Our priority remains to have a balanced use of cash.
Marcos Gabriel: This means funding investments to drive growth.
Marcos Gabriel: Returning a significant portion of cash to shareholders through dividends and maintaining a strong balance sheet.
Marcos Gabriel: We remain committed to strong investment grade rating.
Marcos Gabriel: With another year of strong cash flow driven by profit and working capital initiatives, we successfully reduced our leverage ratio to below three times in 2024 and improved our cash conversion cycle by 10% as compared to the prior year.
Marcos Gabriel: In 2025, we expect to continue to deliver strong cash flow driven by profit and working capital initiatives.
Marcos Gabriel: Overall, our results for 2024 were consistent and in line with our guidance and reflect the success of our strategy and focusing investments in the areas that drive the greatest value.
Marcos Gabriel: Now turning to our 2025 financial outlook on slide 16.
Marcos Gabriel: Our outlook continues to reflect our prioritize investments in key categories to strengthen volume trends and drive long term profitable growth, while appreciating the uncertainty of the consumer and micro environment.
Marcos Gabriel: In addition, this outlook is in line with expectations, we laid out on Investor day in October and reinforces our confidence in our 2028 targets as well as our long term objectives.
Marcos Gabriel: Turning to the details.
Turning to the rates I expect it to have a one point negative impact on both net sales and adjusted operating income and two points on adjusted earnings per share.
Marcos Gabriel: At the top line, we expect organic net sales growth to range between one and 3% and our growth. So the volume led with minimal pricing.
Marcos Gabriel: In China, our food away from home business, which is included in the APAC consumer continues to be impacted by slower demand.
As a result, our outlook assumes a gradual recovery and we expect China consumer sales to improve slightly year over year.
Marcos Gabriel: While we recognize that has been weak demand we continue to believe in the long term growth opportunity of the China business.
Marcos Gabriel: Our 2025 gross margin is projected to range between 50 to 100 basis points higher than 2024.
Marcos Gabriel: This gross margin expansion reflects favorable impacts from product mix and cost savings from our CCI program.
Marcos Gabriel: Partially offset by the anticipated impact of a low single digit increase in cost inflation.
In addition to our gross margin expansion, we expect SG&A benefits from cost savings to be partially offset by investments to drive volume growth, including brand marketing.
Marcos Gabriel: For the year, we expect our brand marketing spend to increase in the high single digits.
I can't double digit increase partially offset by anticipated CCI savings.
Marcos Gabriel: As a.
Marcos Gabriel: <unk>, our adjusted operating income is expected to grow 4% to 6% in constant currency.
Marcos Gabriel: A balanced outlook that gives us the flexibility to continue to invest in the business, while expanding margins in line with our 2028 objectives.
Marcos Gabriel: In terms of tax we expect our tax rate to be approximately 22% for the year compared to 25% in 2024, while we benefited from a number of discrete tax items that are not expected to repeat in 2025.
Marcos Gabriel: Yes.
Marcos Gabriel: We expect our income from unconsolidated operations to decline in the mid teens range in 2025, reflecting the strengthening of the U S dollar against the Mexican peso, which is impacting the results of our largest joint venture Mccormick into Mexico.
Marcos Gabriel: Excluding this currency headwind.
Marcos Gabriel: One of the main Eagle continues to deliver strong performance.
Marcos Gabriel: To summarize our 2025 adjusted earnings per share projection of $3 <unk> to.
Marcos Gabriel: The $3 eight on a reported dollar basis.
Marcos Gabriel: Currency headwinds and the impact of the increased tax rate relative to the prior year.
Marcos Gabriel: On a constant currency basis, adjusted EPS is expected to grow between five and 7%.
Marcos Gabriel: As we head into 2025, let me summarize some of the puts and takes to consider related to our performance.
Marcos Gabriel: We expect to continue to deliver total volume growth across both segments.
Marcos Gabriel: Gross margin expansion for the first quarter is expected to be modest relative to the prior year.
Marcos Gabriel: Primarily due to price gap management investments that were mostly in place since the second quarter of 2024.
Marcos Gabriel: We expect gross margin to build over the year consistent with historical trends.
Marcos Gabriel: We anticipate our SG&A will be impacted by a consistent increase in brand marketing every quarter in line with our full year guidance.
Marcos Gabriel: In addition, our stock based compensation expense will shift from the second quarter to the first quarter impacting comparisons to the prior year.
Marcos Gabriel: Our adjusted operating profit will be impacted by this shifting timing, causing the first quarter to be flat or slightly down relative to the prior year. However, this will be more than offset by operating profit growth in the second quarter, and we expect our profitability to build throughout the year.
Marcos Gabriel: As Brent noted, we continue to prioritize our investments to drive impactful results are.
Marcos Gabriel: Our continuation of volume led growth underscores that we are moving in the right direction.
Marcos Gabriel: And we remain confident in the underlying fundamentals of our business and delivering on our 2025 financial outlook near term and long term objectives.
Speaker Change: Thank you Marcos before moving to Q&A I would like to close with our key takeaways on slide 17.
Marcos Gabriel: The long term trends that fuel our categories.
Marcos Gabriel: Interest in healthy flavorful cooking heat flavor exploration and trusted brands continue to be strong and importantly, consumer interest in cooking remains elevated.
Marcos Gabriel: We are pleased with our results for the quarter and for the year. These results demonstrate that we are investing in the areas that drive the most value and reinforces our confidence in our plans and long term objectives.
Marcos Gabriel: We continue to execute on our strategic roadmap with speed and agility and in alignment with consumer trends.
Marcos Gabriel: Further capitalizing on our attractive categories across segments and driving category leadership.
Marcos Gabriel: Our plans are yielding strong results and we expect the momentum to continue into 2025.
Marcos Gabriel: We also continue to expand margins and manage our costs as we are investing in the business.
Marcos Gabriel: These improvements are led by our favorable product mix and cost savings programs.
Marcos Gabriel: Our performance coupled with our growth plans gives us confidence in achieving our near and long term objectives.
Marcos Gabriel: We believe the execution of our growth plans will be a win for consumers customers or categories, and Mccormick, which will continue to differentiate and strengthen our leadership.
Marcos Gabriel: Finally.
Marcos Gabriel: I want to recognize all Mccormick employees for their dedication and contributions, particularly as we navigate this complex environment.
Marcos Gabriel: And reiterate my confidence that together, we will continue to drive differentiated results and shareholder value now for your questions.
Speaker Change: Thank you well now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Speaker Change: Press Star two to remove yourself from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Speaker Change: A moment, please while we poll for your questions.
Speaker Change: Our first questions come from the line of Andrew Lazar with Barclays. Please proceed with your questions.
Andrew Lazar: Great. Thanks, so much good morning, everybody good morning, Andrew.
Speaker Change: I guess to start off Brendan.
Speaker Change: Brendan consumer organic sales came in almost two 5% well ahead of what the street was anticipating and within that volume growth of four was was obviously quite strong even despite the weakness in China.
Speaker Change: Particularly in the context, I guess of a broader packaged food environment. So I guess, what do you attribute the strength in I guess more importantly, how do you see this momentum continuing into fiscal 'twenty five.
Speaker Change: Thank you Andrew.
Speaker Change: Kind of lead off we believe we're really well positioned to win in an evolving environment and I think you saw obviously some of that come through in our performance in the fourth quarter.
Speaker Change: Leading up through up to the fourth quarter I think year to date, so we've been delivering on our plans and our guidance for the year essentially accomplishing what we do.
Speaker Change: So specifically from a consumer perspective.
Speaker Change: Looking at were really pleased with the performance of the portfolio in the fourth quarter.
Speaker Change: The performance was pretty strong global volume growth was around 4%, but importantly, like in the Americas, we saw about 5% volume mix growth with strong acceleration from the third quarter to fourth quarter and we saw very consistent strong performance in EMEA and about 5%. So we're seeing volume growth in our core cabinet.
Speaker Change: <unk> I think a way to think about it as leading up to the fourth quarter. There are a lot of.
Speaker Change: Very healthy things in place, which were increased investments across our business.
Speaker Change: Increase in brand marketing, we've had increased innovation.
Speaker Change: A lot of the new products that we're launching are meaningful to our performance expanded distribution.
Speaker Change: And then we also implemented price gap management too. So all of those were things kind of in the face kind of leading up to the fourth quarter, which were all quite positive at providing and supporting already what was emerging thats really strong healthy volume growth I think on top of that was different in the fourth quarter.
Speaker Change: And which sort of accelerated outperformance was just a great holiday season execution. It's one of the best I've seen us execute and we're really really happy with the way that debt.
Speaker Change: That unfolded, we also had very successful limited time offering and these finishing sugars.
At shelf that was like a 90% sell through it just really flew off the shelf. So we had really good performance off of that.
Speaker Change: We are also running a brand new marketing campaign supporting broadly the umbrella of Mccormick and especially in the holidays and we think that campaign.
Speaker Change: It's a refresh of what we had been running and it's really performing quite well.
Speaker Change: I would also add on top of that we're growing faster in unmeasured channels like E Commerce.
Speaker Change: It is just sort of great execution beyond just grocery and mass so.
Speaker Change: Overall, we saw that that 5% increase in volume also translate to 5% consumption growth. So it was in line with shipments. So I think it was a really pretty healthy quarter.
Speaker Change: As we look beyond the fourth quarter and into 2025.
Speaker Change: I would say.
Speaker Change: We said in Investor day.
Speaker Change: <unk> continued to increase.
Speaker Change: And our brand marketing investment, we get great Rois on that we get great performance will continue to sort of lean into more brand management.
Speaker Change: <unk> a continued increase in innovation so as.
Speaker Change: As we look ahead, we will have strong performance on the items that we launched in 'twenty four.
Speaker Change: That will also have more launching in 'twenty five.
Speaker Change: We also have continued focus on renovation we spent some time talking about this investor day, but we will have the new.
Speaker Change: Package for our drilling line fully on shelf.
Speaker Change: The type of grilling season starts and we have the gourmet launched sometime in the second half, which is a relaunch of just product packaging and graphics and so that'll be exciting and the existing price gap management plans will remain in place. So that's part of our our base as we move forward, we'll share more details at Cagny, but.
Speaker Change: Do feel reasonably pretty good about.
Speaker Change: I think the performance in the fourth quarter around our consumer business globally.
Speaker Change: Thanks for that and then just briefly Marcos no surprise that fiscal 'twenty five is another reinvestment year as you all highlighted at your analyst day last fall.
Speaker Change: Hoping you could talk a bit more about where this investment is targeted and how this all plays into your broader guidance for the year. Thanks, So much.
Marcos Gabriel: Yeah, So Andrew so we are.
Marcos Gabriel: Expecting that they will continue to make investments on technology.
Marcos Gabriel: Talks about technology being one of the levers that shifted from Q3 into Q4 and you saw that SG&A was impacted in Q4 by that but he looked at SG&A for the full year was up 40 basis points and that was primarily driven by brand marketing and a little bit of technology and.
Marcos Gabriel: That technology in Q4, we will continue to be.
Marcos Gabriel: A line item into 2025, we're stepping up investments there will continue to drive.
Marcos Gabriel: Our ERP implementation program plus also the new generation of capabilities I would say.
Marcos Gabriel: Things like data and machine learning capabilities, we are building a new data analytics hub.
Marcos Gabriel: The organization. So we are stepping up investments.
Marcos Gabriel: Investments in technology, and I believe that overtime, we will continue to drive CCI and productivity savings for the company.
Marcos Gabriel: Thank you.
Speaker Change: Thank you. Our next question is come from the line of Peter Galbo with Bank of America. Please proceed with your questions.
Peter Galbo: Hey, guys. Good morning. Thanks, Good morning, Thanks, very much guys.
Speaker Change: Good morning.
Speaker Change: If I can just follow up actually on Andrew's question around kind of organic sales and the acceleration.
Speaker Change: That you saw in the fourth quarter and what's expected for 25, maybe just just two things Brendan one I think.
Speaker Change: When we talked in Investor Day, we were looking more for like a two to three on organic sales for 25 as an initial and now the range has moved slightly below that so just curious kind of what transpired what's changed from an organic sales standpoint.
Speaker Change: And the second is obviously that range would also imply a deceleration versus the fourth quarter. So just.
Speaker Change: It seems like you have great momentum coming out of <unk> and the comps are an incredibly difficult. So just curious kind of where the maybe there's some conservatism in there, but just where the range has moved would be helpful. Thanks.
Speaker Change: Yes happy to provide some perspective around.
Speaker Change: The guidance specifically on net sales.
Speaker Change: We're exiting 2024 with the strong performance and good momentum like you called out.
Speaker Change: And it does set us up for even stronger performance in 2025.
Speaker Change: I think from from a top line perspective.
Speaker Change: This guide reflects the volume driven plan around.
Speaker Change: Around our business and it's really an algorithm if you will from a volume perspective somewhat like we called out at.
Speaker Change: At Investor Day.
Speaker Change: So does call for meaningful volume improvement year over year, and Theres very little if any price in the aggregate.
Speaker Change: We are building off a stronger base of performance, let's say compared to 23.
Speaker Change: And there was balanced growth between let's say, both the consumer business in the flavor solutions business.
Speaker Change: We also believe this guidance reflects just the context of the evolving marketplace.
Speaker Change: I had kind of a mega speed from two points up with frames are our range on the low end is is China from a consumer perspective, we're still seeing weak consumer confidence there and we expect.
Speaker Change: Slight sort of gradual recovery there.
Speaker Change: It's also the weakness I think about flavors solutions, it's the weakness that we're seeing in <unk> channels, particularly in EMEA.
Speaker Change: Frames the high end, though is strengthened consumer volumes in the Americas and EMEA I think overall this year our outlook is strengthening from what we said in 2024.
Speaker Change: It reflects kind of a prudent view of the changing marketplace. It's consistent with what we said at Investor day.
Speaker Change: And nothing has really changed in our thinking since then it's all frankly.
Speaker Change: And frankly quite consistent as we look at how we were thinking about 2025 back then in October and how we're thinking about it today.
Speaker Change: That's helpful. Thanks for framing that Brendan and maybe just to follow up the less talked about.
Speaker Change: Outside of Americas consumer just your perspectives.
Speaker Change: U S foodservice it seems like maybe we're setting up for.
Speaker Change: Get better year in 'twenty five.
Speaker Change: Yeah.
Speaker Change: As well you talked about the weakness on <unk>, but just that the EMEA consumer business has been delivering strong as well so just how youre thinking about Europe in 25, thanks very much.
Speaker Change: I think what we're certainly if we saw a lot of strength in 2024 out of EMEA from from our consumer business is certainly offset what was weakness in flavor solutions.
Speaker Change: I think our view is we still see continued strength in our consumer segment, they're in the market with plants were strong.
Speaker Change: Similar points to what I said, and just sort of the fourth quarter. Those continue as we go into 25 on the on the flavor solutions side of the business.
Speaker Change: We see it.
Speaker Change: Sort of a gradual strengthening of where we are there, but we have to kind of call out right. Now is sort of weak volumes. So that's where we're seeing life today, but I think as we look towards the year.
Speaker Change: Improvement overall in our performance in that part of the world from a flavor solutions perspective.
Speaker Change: No.
Speaker Change: From a from a let's say CPG customer to a <unk> customer and we think the strength will come in certainly from a CPG. It will start to build <unk> won a couple still issues geopolitical happening within that part of the marketplace. So we're seeing that come through.
Speaker Change: And some are not only the perspective that we're getting from our customers, but that is playing out a little bit the middle East conflict is start to affect.
Speaker Change: Not just the <unk> side of the business, but for CPG. However, we still see improved performance versus 24.
Speaker Change: On the flavor solutions side.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question is come from the line of Alexia Howard with Bernstein. Please proceed with your questions.
Speaker Change: Good morning, everyone.
Speaker Change: Good morning.
Speaker Change: So first of all can you.
Speaker Change: Ask about.
Speaker Change: Doing in the flavor solutions segment entity can you source to growths innovative customers I know you don't see that.
Speaker Change: Maybe a year or two ago, how quickly is that happening.
Speaker Change: Are you able to share what proportion of sales.
Speaker Change: New customers represent and how that might develop over time, and then I have a follow up.
Speaker Change: Sure happy to provide some perspective around that we're not going to disappear.
Speaker Change: So to speak to her.
Speaker Change: The whole portfolio breaks down.
Speaker Change: Yes.
Speaker Change: Despite what we're seeing in terms of just sort of overall flattish.
Speaker Change: Volumes as you saw in the fourth quarter.
Speaker Change: We do see just faster performance and to give you some context just these.
Speaker Change: These tend to be.
Speaker Change: As we described them as sooner.
Speaker Change: <unk> growth innovator sort of customers, but it's happening in categories like.
Speaker Change: Bars and granola crackers.
Soups and broth.
Speaker Change: Beverage, whether it's with alcohol without alcohol.
Speaker Change: Or even just sort of performance nutrition, we continue to see strength in a number of themes.
And categories. If you will up against those tastes competencies that we called out at Investor day. So.
Speaker Change: These are.
Speaker Change: Customers that we continue to seek and acquire and we believe that as we go into 'twenty five we continue to really drive growth across this business not only as volumes improve but also as we gained share in the marketplace overall so.
Speaker Change: If I were to think about like what that added context might be given the spirit of your question.
Speaker Change: That's probably I think the.
Speaker Change: Context, others think about it from our end market category perspective, we're just seeing a little bit faster growth in these areas.
Speaker Change: Now what does that.
Speaker Change: So just to add and food away from home and you think about branded.
Speaker Change: Branded foodservice, we're still seeing very healthy here in 2024 are in that part of our business and we expect that to also that contributes to that Alexia is as our performance in branded foodservice too and we.
Speaker Change: We expect traffic to incrementally get better, but we're gaining share and worked through is driving a lot more activity with our customer base there has been pretty healthy growth.
Speaker Change: Perfect.
Follow up and this is another broad question.
Speaker Change: If we see a number of our food additives like Red number three some of the others.
Speaker Change: Eliminated from the generally recognized as safe designation and we see around reformulation across the broader industry.
Speaker Change: How do you position yourself on Tibet into that on the flavor solutions side to be part of that cycle. If it plays out thank you and I'll pass it on.
Speaker Change: Sure.
Speaker Change: We see ourselves as actively in that going on right now today.
Speaker Change: The way we.
Speaker Change: Have an opportunity to sort of.
Speaker Change: Play into those changes that may or may not occur as we talked about changes in food regulation or just sort of a push towards healthier eating.
Speaker Change: We actively play out right now with the customer base that we have today in terms of working out re formulations and product improvements that I believe that this is where innovation really drives the industry. It has four.
Speaker Change: Decades, and will continue because.
Speaker Change: We will continue to moving forward and so we believe we're poised pretty well.
Speaker Change: To be able to work with our customers on making any product formulation changes that.
Speaker Change: I would like to make this could be the removal of artificial colors of sodium reduction.
Just increasing and clean ingredients. These are areas that we have been working on well in prior to 2025.
Speaker Change: We're quite confident that we'll participate in that.
Speaker Change: Great. Thank you very much I'll pass it on.
Speaker Change: Thank you our next questions come from the line of Robert Moskow with TD Cowen. Please proceed with your questions.
Speaker Change: Alright. Thanks for the question actually I have a couple I wanted to know if I could.
Speaker Change: Hone in a little bit more on the guidance range of 1% to three you mentioned that the low end factories in weakness in China and I wanted to know could you could you be more specific about your expectations in China.
Speaker Change: With the low end of the range, the 1% entail China getting worse or are you not that specific on on what the 1% means.
Speaker Change: It means and then I had a quick follow up.
Speaker Change: I think our characterization in terms of what starts to sort of provide context around where that loan might be is.
Speaker Change: Yes.
Speaker Change: Youre thinking about.
Speaker Change: Yes.
Speaker Change: China has not met expectations right. We certainly saw that in 'twenty three and we saw it again in 'twenty four.
Speaker Change: So I think what we're doing is we're we're kind of factoring that into our thinking.
As is.
Speaker Change: As China, we do expect it to get sort of a slight and gradual improvement and in fact, Marcus and I were there.
Speaker Change: Just in the first week of January spending time.
Speaker Change: With our leaders in that business looking over.
Speaker Change: Just the changes in the marketplace.
Speaker Change: As well as what are the growth plans for the year and what expectations should we have so I think we're seeing.
Speaker Change: Our level of Prudence from US just in terms of how to think about China.
Speaker Change: And I think that's that's kind of a context I would say that sort of provides that that low end context honestly.
Speaker Change: Juxtaposed against what I framed is sort of what's driving the high end, yes. Rob. This is this is that net dynamic environment and we wanted to be balanced in our call.
Speaker Change: Right now not only in terms of top line, but also.
Speaker Change: In terms of from a from an op perspective.
Speaker Change: Theres just sign the guide so we wanted to really be I mean, I think it is a positive.
Speaker Change: Guide, but also its balanced given the environment that we're in.
Speaker Change: Okay, and the follow up in fourth quarter the flow through to operating income wasn't quite as strong as we and I think the street had expected and you talked about some really strong volumes in consumer and looked really great and my perception is that consumers is higher gross margin.
Speaker Change: Then in flavor solutions or just higher margin. So can you explain what was your operating income in the fourth quarter in line with your expectations or was there a little more incremental spending on distribution, which you mentioned in your press release or the detail. Thanks.
Rob Dickerson: No Rob I mean, it was pretty much in line with our expectations.
Rob Dickerson: How we came in in Q4, I mean, we've talked about in the last quarter.
Rob Dickerson: Call that we were going to be shifting some of the expenses primarily related to technology in R&D from Q3 into Q4. So that's what you have seen that in.
Rob Dickerson: In the P&L for this quarter and impacts from SG&A, primarily.
Rob Dickerson: And that is what is kind of.
Rob Dickerson: Taking us down to a negative slightly negative.
Rob Dickerson: But but as you think about SG&A from guests and a perspective on the three year full year basis.
Rob Dickerson: It's in line as well with expectations 40 basis points incremental year on year on the back of our A&P continued technology investments as I mentioned before and and the step up in technology will continue into 2025.
Speaker Change: Okay, great. Thank you.
Speaker Change: Thank you our next questions come from the line of Rob Dickerson with Jefferies. Please proceed with your questions.
Rob Dickerson: Great. Thanks, so much.
Speaker Change: <unk>.
Speaker Change: I guess just.
Speaker Change: In terms of pricing the commentary that you gave will be about Q1.
Speaker Change: You continue to look to manage price gaps.
Speaker Change: I guess my question kind of by how.
Speaker Change: How much more do you think you'd need to actually manage price gaps that we talk about assessment.
Speaker Change: Talking about technology investment kind of brand building in general a lot of different investments if we focus just on price.
Speaker Change: Do you feel like Theres actually that much more price investment that needs to come through with Q1 and then maybe.
Speaker Change: Any perspective on kind of how that flows through the year and I can I, just ask given especially consumer Americas volumes.
Speaker Change: We're very strong in Q4 and I'm not sure Scott.
Speaker Change: Q4 specific because of some of the holiday.
Speaker Change: Products, you had in the marketplace or the.
Speaker Change: Volumes continue by kind of why do you need to continue to invest in price gaps.
Yes, yes.
Speaker Change: Rob.
Speaker Change: On price I think there is really kind of two points may be there too.
Speaker Change: Address in your question.
Speaker Change: As we think about price and.
Speaker Change: We called out.
Speaker Change: We're still going to be overlapping the beginning of those investments in Q1.
Speaker Change: That's consistent that level of investment is consistent with what we were doing previously like Q2 Q3.
Speaker Change: Sort of year to date, so as we go into Q1.
Speaker Change: We're not seeing a step up in that we're seeing sort of a maintenance of it if you will.
Speaker Change: As we go into Q1 is the way I would.
Speaker Change: Ask you to think about it for the balance of year is maintaining that investments in our baseline. If you will of how we think about supporting our brands and supporting the the volume growth that we've been driving so the price gap management.
Speaker Change: As we haven't planned for right now 25.
Speaker Change: He is a continuation of how we applied it in 'twenty four.
Of course throughout the year, we just don't sort of set those numbers then, leaving we never look at them, we're constantly evaluating how they are performing.
Speaker Change: So we sort of surgical review of.
Speaker Change: What's the return that we're getting there.
Speaker Change: They are applied but I think from a macro standpoint, you should think about that as a continuation of what we did in 2004 <unk>.
Speaker Change: You mentioned, a little bit about sort of the.
Speaker Change: Our performance in the fourth quarter and its strength, let's also remember.
Speaker Change: The fourth quarter is our biggest quarter of the year in terms of consumption and I think what you saw was just obviously really strong execution.
Speaker Change: A pickup from consumers in terms of more scratch cooking holiday season.
Speaker Change: The holiday season was a bit compressed, but it didn't seem to hurt us in any way.
And we had really really overall pretty good performance, but there's just a little other points of context I would add as you think through.
Profile of our performance.
Speaker Change: Okay, Great and then maybe just more broadly speaking as you think of your portfolio.
Speaker Change: At least from a consumer side.
Speaker Change: <unk>.
Speaker Change: It does seem as if let's say at least through the back half of last year, right that kind of more meal related items.
Speaker Change: It would be doing a little bit better perimeter of the store, whether it's chicken pasta et cetera.
Speaker Change: Versus maybe some more incremental pressure or ongoing pressure in some more discretionary items.
Speaker Change: Turning my my guess is that there is still some benefit from those mills with somebody you can talk to you about for years right consumers cooking from scratch and at home and heard all through Covid.
Speaker Change: Just kind of curious kind of what the updated perspective is.
Speaker Change: On some of them make them, let's say all the perimeter and some of these deal related items, and then clearly how that would get us.
Speaker Change: Again, your consumer Americas business, and that's all I had thank you.
Speaker Change: Well I think there was a little bit there we may have cut out, but I think I got your question and that was more towards our outlook on sort of the consumer in 2025.
Speaker Change: I would say our outlook on the consumer environment Hasnt changed significantly but that doesn't mean, it's boring.
Speaker Change: There's a lot going on right there and I think a lot of it does really position us well to win in this evolving.
Speaker Change: Involving <unk>.
Speaker Change: Environment the demand for flavor is pretty strong.
Speaker Change: We've said before other others compete the calories we flavor.
Speaker Change: We are seeing a continuation of cooking at home and our focus on healthier eating.
Speaker Change: And we believe that obviously this is dispositions our portfolio well to perform well in an environment like this.
Speaker Change: We believe that value is going to remain important for consumers as you saw in some of my prepared remarks.
Speaker Change: Still that lower income consumers still remains quite challenged overall.
Speaker Change: And they're looking for value and affordability and not just in the United States with a port in Europe Theyre looking for it in Asia and.
Speaker Change: And so these are things that we believe are kind of globally consistent themes that we're seeing in the influence our plans and the way we think about our portfolio.
Speaker Change: Overall.
Speaker Change: So.
That's our contact with the consumer going into 2025, I would say remaining.
Speaker Change: <unk> on driving towards healthy eating.
Speaker Change: We see people go to the perimeter.
Speaker Change: To buy more proud as defined more protein, we think they're doing it for two reasons, we're doing it because they are looking to obviously.
Speaker Change: Save money stretch their budgets, but also there's a bias towards eating healthier.
Speaker Change: Super Thank you.
Thank you our next questions come from the line of Ken Goldman with Jpmorgan. Please proceed with your questions.
Ken Goldman: Hi, Thank you I was hoping for a little bit of color on your outlook for margin expansion growth between the two segments.
This past year 2024.
Ken Goldman: Consumer was flattish obviously flavor solutions had a great performance in terms of margin growth are you expecting maybe not the same magnitude, but sort of directional similarity just given some of the pressure that consumer might feel from higher AD spending maybe a little maybe a little bit more promotion just wanted to get a sense for how you would like us to kind of think about that.
Ken Goldman: Progression from here.
Speaker Change: Sure Ken.
Speaker Change: So first of all I mean, we're very pleased with the gross margin expansion. We had in 2024 was 90 basis points at.
Speaker Change: At a high end of our guidance range and then we have a really good reasons to believe that this will continue into 2020 five.
Speaker Change: So our I'll call it $4 50 to 100 basis points.
Speaker Change: Into 2025 as well.
Speaker Change: Couple of items, there I would say that is driving this.
Speaker Change: Expectations for Us, obviously, CCI and our productivity savings that we have in place right. Now is working very well for US I mentioned technology before technology will also help drive more savings in future years. The usage of global business services organization will continue to tap on that simplifying processes.
Speaker Change: And the advertising the way that we do work all of those things will help us drive more savings going into the future years and then.
Speaker Change: Mix portfolio mix is a big ladder, particularly within flavor solutions.
Speaker Change: As we continue to shift our portfolio to a high margin.
Speaker Change: Categories, such as flavors branded foodservice those categories to drive higher margins. So if you think about it between the two segments I would expect more gross margin coming from the flavor solutions segment.
Speaker Change: Versus the consumer segment that is also in line with our strategy of continuing to drive profitability at the bottom line for flavor solutions as you saw we've.
Speaker Change: <unk> improved our operating margin by 140 basis points in 2024, and we have a commitment to get back to 14, 5% by 2028.
Speaker Change: A very important progress that we made now two years in a row on flavor solutions. So that is the hull.
Speaker Change: The idea about our guide in terms of gross margin as well as operating margin.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you. Our next question is come from the line of Max <unk> with BNP Paribas. Please proceed with your questions.
Speaker Change: Thanks for the question in the U S. Specifically your consumer segment is posting strong volumes, but you called that at year CPG customers in flavor solutions have soft volumes, which we can clearly see in Nielsen data as well so I'm just curious for.
Speaker Change: For your color on what's driving that dichotomy, thanks very much.
Speaker Change: Well as you.
Speaker Change: <unk> we.
Speaker Change: We compete within segments that are sort of very focused around herbs spices and seasonings in condiments and sauces in I think.
Speaker Change:
Speaker Change: When we think about our portfolio compared to the rest of.
Speaker Change: Food and beverage within the United States.
Speaker Change: I think we first have to start there in these categories and healthy growth and.
Speaker Change: And so we benefit from that but also I believe that we jumped on execution quite early in 2024, if you think about.
Speaker Change: Maybe my remarks back at the beginning at this time last year I said that it was our goal to move fast and really meet the consumer with where they were or where they are today.
Speaker Change: And that is a real intentional focus on our part.
Speaker Change: From standpoint of being competitive and executing quickly in the marketplace. I think we will also benefit from that.
Speaker Change: One of the categories in which we compete large ones like condiments and sauces.
Speaker Change: Competing in what we believe are some of the faster growing versions of condiments and sauces like Keith is one example.
Speaker Change: Pre ticket category like mustard, we're growing it.
Speaker Change: In particular, we're making mustard important to consumers by the way a theory.
Speaker Change: Healthy profile when you think about that economy, So I think theres a number of.
Speaker Change: Indicators here.
Speaker Change: That that gives us a little bit of.
Sort of an improved profile and it's a combination of both our execution and our commitment to drive the volume, but also operating in a relatively healthy categories in the consumer environment right now certainly as it always has continues to favours the categories we plan.
Speaker Change: And then Mark Coast, there was the comment about cash flow.
Speaker Change: And 24 are being impacted by decisions to increase inventory Tom I think there are strategic buying decisions can you just provide more color on what those.
Speaker Change: Where and how we should think about those in FY 'twenty five I'll leave it there thanks very much sure.
Speaker Change: Sure I mean the.
Speaker Change: Cash flow continues to be a very positive outcome for us. This year continues to drive a lot of cash this company 922 million.
Speaker Change: <unk>.
Speaker Change: In 2024.
Speaker Change: We made some and this is business as usual for us we make decisions about our for buying some of the commodities for us at times, So oftentimes when we make those decisions to bringing inventory.
Speaker Change: And now to protect service center drive supply chain be available.
Speaker Change: For supply chain, but also to locking some favorable cost and so we do take those decisions oftentimes.
Speaker Change: Difficult to predict what's going to happen in 2025, but it is part of our playbook in terms, how we manage all the input cost and the coupon it is across the globe within our procurement organization to have a very data driven.
Speaker Change: Allergists and the methodologies that they use and we leveraged a lot of that to make those decisions.
Speaker Change: Great. Thanks very much.
Speaker Change: Thank you. Thank you our next questions come from the line of Stephen powers with Deutsche Bank. Please proceed with your questions.
Stephen Powers: Great Hey, Thanks, just one question from me, but maybe you both want to weigh in on it.
Speaker Change: Just maybe apart from Marcos is just.
Speaker Change: On your brand marketing plans for the year it sounded like the the rates of increase year over year was going to be pretty even throughout the year.
Speaker Change: Just wanted to play that back and validate and if that's not correct. If you could give us a little sense of the cadence of increase.
Brendan Foley: That is and then Brendan.
Brendan Foley: The other part of that is just kind of the the what where that money is going to go and is it is it should we think about it is it just more spending in the same direction or.
Brendan Foley: Does the makeup of brand marketing and the focus of that marketing shifts at all in 'twenty five versus.
What we've seen.
Brendan Foley: Looking backwards. Thank you.
Brendan Foley: Sure. So David the first part of the question is yes, I mean, the answer is yes, I mean, we're going to be spending similarly to 2024 levels on A&P high single digits, and theres going to be across all quarters, so pretty much even across the quarters, leading to the high single digits, which is the same as that as we signed 2034.
Brendan Foley: Steve.
Speaker Change: With respect to how we're spending that money, where we see obviously driving strong returns I think that serves two perspectives on that rig.
Speaker Change: Think about the vehicles that we go into when you think about the presentation that we shared at Investor day.
Speaker Change: Those are the vehicles in which we're going into so it's.
Speaker Change: It's not that we see dramatic change in exactly.
Speaker Change: How were spending it but you see that we're getting even greater penetration and reach as we add more dollars to us too.
Speaker Change: To support the investment behind our brands.
Speaker Change: I would also say, we also look strategically across the portfolio with the side too.
Speaker Change: Increased spend levels on one brand versus another if you think about this idea of driving resources focus will beget. The strongest return that also drives our thinking about that allocation of A&P. So.
Speaker Change: As we said for example in the beginning of 'twenty four we're going to add a lot more media coverage.
Speaker Change: More 12 months coverage on a brand like Frank's Red Hot and we've seen good performance off of that and so that's in our baseline and we'll continue to build on that there are other brands, which we are going to start to flex even more A&P spend it too. So this is the mindset that we use but I think the review that <unk> gave at Investor Day, I think is good.
Illustration of where we tend to spend the money, but it's also we're sort of starting to place.
Speaker Change: The increased spend on certain other brands.
Speaker Change: Great. Thank you very much.
Speaker Change: Hello Hello.
Unidentified Moderator: Thank you our final question will come from the line of Tom Palmer with Citi. Please proceed with your questions.
Tom Palmer: Good morning, and thanks for squeezing me in.
Tom Palmer: I wanted to I guess first ask on just the cadence of earnings relative to the annual growth ranges for organic sales growth and operating profit growth should we be thinking about starting off the year within this annual guidance ranges and sustaining it or is there some some builds.
Tom Palmer: To be thinking about thanks.
Tom Palmer: So in terms of top line, we will continue to drive top line momentum from 2024 into 2025, you see volume growth across both segments in Q1 and that should continue through.
Tom Palmer: Through Q4, so thats our expectations into this this year in terms of profit on the in my prepared remarks, I mentioned, the a little bit of a shift.
Tom Palmer: <unk> Q1, and Q2, so you will see in operating profit that is in Q1 that is slightly.
Tom Palmer: Down to flattish I would say given the pricing that were lapping from prior year, but also stock comp.
Tom Palmer: The shift of compensation shifts from Q2 into Q1 now.
Tom Palmer: Our new policy, so that's going to impact Q1, but it's going to be more than offset by the increase.
Tom Palmer: In Q2.
Tom Palmer: So and then you should see the similar trends going into the back half of the year. So I would say top line consistence across all quarters, a little bit of shifting MLP between Q1, and Q2 gross margin line pretty much consistent and growing across.
Tom Palmer: Q from Q2 through Q4.
Speaker Change: Okay. Thanks, Thanks for that color on the JV income I, just wanted to clarify the currency versus underlying trends.
Tom Palmer: We were to exclude the currency headwinds.
Speaker Change: With this business.
Speaker Change: How youre thinking about 2025 still be growing.
Speaker Change: Well, yes, I mean, the business is still growing the business is very robust and in down in Mexico.
Speaker Change: And I have part of the board of the JV and we monitor that performance on a very very close and done on a quarterly basis.
Speaker Change: <unk>.
Speaker Change: The business is a very good business it drives a lot of volume and it drives a lot of profitability as well.
Speaker Change: What's impacting is really the FX and the FX the strengthening of the of the of the dollar up against the Mexican peso and I mentioned it takes about 20% devaluation of the Mexican peso a year on year from 17 to 20 Mexican peso to the dollar but that is really what's impacting us there on the translation of those.
Speaker Change: Results back to ink to ink to us, but the underlying performance of the business is really pretty strong right now.
Speaker Change: Great. Thank you.
Speaker Change: Sure. Thank you we have reached the end of our question and answer session I would now like to hand, the call back over to <unk> for closing remarks.
Speaker Change: Thank you and thanks to all for joining today's call. If you have any further questions regarding today's information. Please feel free to contact me. This concludes.
Speaker Change: Good morning.
Speaker Change: Thank you. This does conclude today's teleconference. You may disconnect at this time.